Preamble

The House met at half-past Two o'clock

PRAYERS

[Mr. SPEAKER in the Chair]

ROYAL ASSENT

Mr. Speaker: I have to notify the House, in accordance with the Royal Assent Act, 1967, that The Queen has signified Her Royal Assent to the following Acts:

1. Public Health (Recurring Nuisances) Act, 1969.
2. Agriculture (Spring Traps) (Scotland) Act, 1969.
3. Vehicle and Driving Licences Act, 1969.
4. Ponies Act, 1969.
5. Tanzania Act, 1969.
6. Town and Country Planning (Scotland) Act, 1969.
7. Aberdeen Corporation (Fish Market) Order Confirmation Act, 1969.
8. Edinburgh Trades Maiden Fund Order Confirmation Act, 1969.
9. Luton Corporation Act, 1969.
10. National Westminster Bank Act, 1969.
11. British Transport Docks Act, 1969.
12. Tweed Fisheries Act, 1969.
13. Lands Improvement Company's Amendment Act, 1969.
14. Corn Exchange Act, 1969.
15. Farmer &amp; Company, Limited (Transfer of Registration) Act, 1969.
16. Hardy Brothers, Limited (Transfer of Registration) Act, 1969.
17. Bristol Clifton and West of England Zoological Society Act, 1969.

PRIVATE BUSINESS

WELLAND AND NENE (EMPINGHAM RESERVOIR) AND MID-NORTHAMPTONSHIRE WATER BILL (By Order)

Third Reading deferred till Tuesday next at Seven o'clock.

BEDFORD CORPORATION BILL [Lords] (By Order)

Second Reading deferred till to-morrow.

Oral Answers to Questions — DEFENCE

Land, Woking

Mr. Onslow: asked the Secretary of State for Defence what recent representations he has received for the release for civilian use of land in military occupation in the Woking constituency; and what reply he has sent.

The Under-Secretary of State for Defence for the Army (Mr. James Boyden): During the last 12 months we have had 25 specific requests, of which we have been able to agree 18; we have been unable to accept two; and the remaining five are under consideration.

Mr. Onslow: I hope that the Minister will continue to give sympathetic consideration to these representations, particularly in the case of Ash parish where very little land has been released for community use. Has he received any approach from the Central Electricity Generating Board for the release of a substantial acreage of military ground for the purpose of constructing a new power station?

Mr. Boyden: On the last point, no, Sir. As regards Ash Parish Council, I have written to the hon. Gentleman; we cannot do anything about that. On the broad principle, whenever the Ministry of Defence can release land, it will.

Ex-servicemen (Council House Allocation)

Mr. Onslow: asked the Secretary of State for Defence what assistance his Department is giving to the Housing


Management Sub-Committee of the Central Housing Advisory Committee in its review of local authority practice in allocating council houses, with particular reference to the housing needs of ex-servicemen.

Mr. Boyden: My Department has submitted a written memorandum to the subcommittee on the housing needs of ex-servicemen. I would also refer the hon. Gentleman to the answer given by my hon. Friend the Minister of Defence for Equipment on the forces assisted house purchase scheme on Tuesday, 24th June.—[Vol. 785, c. 250.]

Mr. Onslow: Does the memorandum include specific case histories of the kind of case about which the Minister and I have corresponded in recent years? May I take this opportunity of renewing my offer to come and talk to him about these cases to see what I can do to help?

Mr. Boyden: On the last part, yes, I shall be pleased to see the hon. Gentleman. On the first part, it was a general statement regarding how we should like local authorities to deal with Service people on the basis of housing need, as they do with every other applicant.

Mr. Rippon: I welcome the statement which was made yesterday, but could the hon. Gentleman say how well the local authorities are co-operating in providing houses for Regular ex-Servicemen who obtain employment in their areas and whom the Government have asked should be put on housing waiting lists?

Mr. Boyden: Most local authorities are good, but there are some black sheep we remonstrate with them as hard as we can, and very often we succeed.

Far East Defence (Commonwealth Five-Power Conference)

Mr. Marten: asked the Secretary of State for Defence if he will make a statement on the Commonwealth Five-Power Conference on Far East defence recently concluded in Canberra.

Mr. Goodhew: asked the Secretary of State for Defence what decisions were reached at the Commonwealth Five-Power Conference on Far East defence on 19th and 20th June; and if he will make a statement.

Mr. Dalyell: asked the Secretary of State for Defence if he will make a statement on his official visit to Canberra.

Mr. Shinwell: asked the Secretary of State for Defence what subjects were discussed with Australian, New Zealand and other defence Ministers during his tour overseas.

Dame Joan Vickers: asked the Secretary of State for Defence whether he will make a statement on his recent talks in Canberra concerning the future defence of South-East Asia.

The Minister of Defence for Equipment (Mr. John Morris): I expect that my right hon. Friend will make a statement on his return. Meanwhile, I would refer the hon. and right hon. Members to the official communiqué of the Five-Power Conference, which I shall, with permission, circulate in the OFFICIAL REPORT.

Mr. Marten: In the meantime, is it now Government policy that all three Services shall be in the Far East almost continuously, even after our withdrawal, on exercises; and what support as a result of the conference shall we now give to S.E.A.T.O.?

Mr. Morris: The position is clear. We shall be exercising troops in the Far East; it will not be continuous, but it will be for a substantial part of the year. We shall be using, in particular, the jungle warfare school, and we shall have a number of ships there from time to time.

Mr. Goodhew: Why was the Prime Minister so anxious yesterday to try to differentiate between training in this area and a commitment to be there? Is he suggesting that the troops which are training out there will not be available in any circumstances to come to the aid of our allies?

Mr. Morris: My right hon. Friend was making the position quite clear yesterday, as I am sure the hon. Gentleman realises. He was distinguishing between using certain facilities in the Far East to ensure that we could fulfil our training responsibilities, and an automatic commitment.

Mr. Dalyell: Before my right hon. Friend makes a statement could we have an account placed in the Library of two


matters—first, precisely what commitments have been made in Canberra, so that we can enter into sensible discussions, and, second, some estimate of the costs needed to meet the proposals of the Leader of the Opposition, who said in Australia that he would maintain a force capable of taking part in resisting the Chinese?

Mr. Morris: It is not for me to answer for the Leader of the Opposition, but, on the first part, I would expect my right hon. Friend to make a statement to the House when he returns.

Mr. Shinwell: Could my hon. Friend suggest to his right hon. Friend that, in addition to making a statement, he might issue a White Paper? Although the Government appear to have come to a decision to withdraw from east of Suez, the communiqué and the Press reports seem to suggest that we have entered into many commitments which are likely to be costly. Would it not be wise to issue a White Paper to remove the ambiguity?

Mr. Morris: On the second part, there is no question of our altering our basic decision to withdraw from Malaysia and Singapore by the end of 1971. I will certainly put the point about the White Paper to my right hon. Friend.

Dame Joan Vickers: In view of the fact that we have naval forces there, is the rôle of the Navy, in particular, in the Far East being looked into? Is the training of people from the Far Eastern countries going to be continued in this country?

Mr. Morris: The Navy will be deployed from time to time in the Far East. It is expected to amount to up to four ships or so for up to four months a year. This is the measure of the type of Navy training which we expect in the Far East after 1971.

Mr. Rippon: In view of the fact that most of the ambiguity to which the right hon. Member for Easington (Mr. Shinwell) referred stems, as usual, from the Prime Minister's observations, may we on this side support the suggestion of a White Paper? We should, for example, like to know why the forces that are to remain there most of the time should not remain there all the time.

Mr. Morris: There is no suggestion of any ambiguity in the Prime Minister's statement yesterday. He sought to distinguish between carrying out certain training in the Far East and an automatic commitment. He made the position absolutely clear. I am sure the country will be relieved to know that the Opposition will have no chance of putting into effect their incredibly expensive suggestions.

Mr. Moyle: Can my right hon. Friend confirm specifically that the Government's plans for the rundown east of Suez and the timing of the rundown have not been altered at all as a result of these talks?

Mr. Morris: Both on the rundown and on the timing, there is no question of altering our basic decision to withdraw from Malaysia and Singapore by the end of 1971.

Following is the communique:

1. Delegations from the Governments of Australia, Malaysia, New Zealand, Singapore and the United Kingdom met at Canberra on 19th and 20th June, 1969. Their meeting followed from the agreement reached at Kuala Lumpur in June, 1968, that there should be further consultations at ministerial level among the five nations on questions arising from British military withdrawal from Malaysia and Singapore and on the larger questions of their continuing interest in the peace and stability of the area. Ministers attending the meeting at Canberra were: for Australia, the Honourable Gordon Freeth and the Honourable Allen Fairhall; for Malaysia, the Honourable Tun Abdul Razak; for New Zealand, the Right Honourable Keith Holyoake and the Honourable David Thomson; for Singapore, the Honourable Lee Kuan Yew and the Honourable E. W. Barker; and for the United Kingdom, the Right Honourable D. W. Healey.
2. The meeting was opened with an address by the Prime Minister of Australia, the Right Honourable John Gorton. The meeting elected the Honourable Gordon Freeth, M.P., Minister for External Affairs of Australia, as Chairman. The leader of each delegation then made a general statement on behalf of his Government.
3. The five nations affirmed their continuing interest in the peace and stability of the area and their joint concern with practical questions arising from the withdrawal of British Forces from Malaysia and Singapore. In accordance with their desire jointly and separately to promote stability, peaceful development and regional co-operation in South East Asia, they reaffirmed the need to live in harmony with the other countries of the region. Noting their common concern for the maintenance, within this wider context, of the security of Malaysia and Singapore, the five nations expressed their intention to continue the practice of close consultation among


them about the situation in the area and about developments affecting the security of Malaysia and Singapore. The Conference reaffirmed that the principle, declared at the Kuala Lumpur meeting by the representatives of Malaysia and Singapore, that the defence of the two countries was indivisable, constituted an essential basis for future defence co-operation.
4. Recalling that the representatives of Malaysia and Singapore had affirmed at Kuala Lumpur their resolve to do their utmost for their own defence, the Conference welcomed the substantial progress made by the two Governments in developing their own defence capability and the assistance in training and equipment provided to them by Australia, New Zealand and the United Kingdom.
5. The representatives of Malaysia, Singapore, and the United Kingdom welcomed the announcements that had been made by the Governments of Australia and New Zealand with respect to the continued stationing of elements of their Armed Forces in Malaysia and Singapore after the British withdrawal in 1971. The representatives of Malaysia, Singapore, Australia and New Zealand also welcomed the reaffirmation by the representative of the United Kingdom Government of its intention to continue exercising and training in the area. The Conference saw these steps as a practical expression of the desire of the countries concerned to assist Malaysia and Singapore in developing their own effective defence capability and as a contribution to the security and stability of the area.
6. The Conference went on to discuss practical defence problems arising from the British run-down, the progress so far made and the further steps necessary to meet the situation after 1971. In this connection the Conference considered and noted with approval the work of the Navy, Army and Air Force Advisory Working Groups on the questions referred to them by the previous Conference.
7. Dealing first with the major combined exercise to be held in 1970, the Conference expressed satisfaction with the arrangements proposed for this exercise, accepted the detailed proposals which had come forward, and noted that substantial forces would be contributed by all five countries and that a five-power exercise planning staff was continuing work in Kuala Lumpur. The Conference noted that the exercise would, among other things, demonstrate the capability of the United Kingdom rapidly to deploy forces to the area.
8. It was noted that joint exercises were to continue into the period beyond 1971 and it was agreed that a schedule of such exercises should be developed for consideration. These exercises would enable the techniques of co-operation and of support of local forces to be practised.
9. The Conference approved the outline organisation and related proposals developed by the Army Advisory Working Group to establish a Commonwealth Jungle Warfare Centre. It was agreed that the Group should be reconvened to develop its proposals further.

10. Turning to Naval matters, the Conference noted the arrangements made by the Singapore Government in regard to certain of the former Royal Navy facilities, which would ensure the continuing availability of dockyard and other maintenance support. The Conference welcomed the readiness of Malaysia to maintain and operate the Armament Depot on Singapore Island for the use of the partner countries requiring such facilities and the plan whereby the Malaysian Navy would train Singapore naval personnel, which was a demonstration of the close co-operation between the two countries.
11. The Conference also welcomed the advice of the Singapore Government that the existing Royal Navy facilities in the stores basin area could be made available to meet requirements for the continuing presence of the Australian and New Zealand Navies. It was agreed that the Naval Advisory Working Group should be reconvened to continue the study of the transfer of Royal Navy sea and shore training facilities and of other Naval facilities that would be required in the Singapore area.
12. In the discussion of Air Defence matters arising from the report of the Air Force Advisory Working Group, the Conference noted with satisfaction the constructive developments which had occurred since the last Ministerial Meeting. These included the deployment of a second squadron of Australian supersonic Mirage fighters to Butterworth, with arrangements for the rotation of an element at the Tengah Air Base in Singapore and the availability of Australian aircraft after 1971 for assignment as might be appropriate to the proposed integrated Air Defence system: the arrangements made between Singapore and the United Kingdom for the acquisition by Singapore of Bloodhound Missiles: the development of the Singapore Air Force: the impending transfer of a number of Australian Sabre jet fighters to the Royal Malaysian Air Force: the arrangements made by Malaysia and Singapore for the provision and manning in good time of the radar facilities appropriate to the integrated Air Defence system: and the contributions being made by the United Kingdom and Australia in the training of Malaysian and Singaporean personnel. The Conference welcomed the information conveyed to the meeting by the Malaysian Delegation that the Malaysian Government had entered into a contract for the supply of radar equipment, of which one set will be positioned at Butterworth and will be operational in September, 1971, when the British Government closes Western Hill.
13. The Conference agreed that the integrated system for the air defence of Malaysia and Singapore which was accepted at the Kuala Lumpur Conference should be further developed. Consultations would continue regarding detailed arrangements that might govern contributions to the establishment of the system and the arrangements for its control. The Conference welcomed the positive response by Australia to the proposal of the Air Defence Advisory Working Group that, when the form of the Air Defence system had been finally settled, Australia should provide the first Air Defence Commander.


14. The Ministers considered that there had been a valuable review at the Conference of the significant developments and the extensive and detailed work done since the last Ministerial Meeting. They believed that the Conference had consolidated the progress made at Kuala Lumpur. They agreed that there was a real need to translate the important decisions in principle which the Conference had taken into practical working arrangements. It was noted in the context of the continuing work of the Advisory Working Groups that a number of the issues requiring further study could best be considered in a joint services forum. The Conference therefore agreed to set up a Joint Service Advisory Working Group to consider various problems affecting more than one service.
15. The Conference agreed that there should be close consultation at various levels to carry forward the momentum of defence co-operation: and that the form of these consultations should be left to the Governments concerned to arrange as circumstances might require. The Ministers agreed that they themselves would meet again after the major Commonwealth exercise planned for the middle of 1970.

Anguilla

Mr. Marten: asked the Secretary of State for Defence if he will publish the despatches from the officer commanding the military forces which intervened in Anguilla.

Mr. John Morris: No, Sir.

Mr. Marten: Why is that? Are they unpublishable, even in Punch? After that reply, can the right hon. Gentleman tell us how many troops are needed in Anguilla, how long they will remain there, and why?

Mr. Morris: On the first part, the dispatches from Anguilla are military dispatches and would contain a number of matters which, in accordance with usual practice—as the hon. Gentleman will know from his own experience—are classified information.

Zambia

Mr. Biggs-Davison: asked the Secretary of State for Defence whether he will make a statement about future defence co-operation with Zambia.

Mr. John Morris: Apart from the Zambian Government's request for the withdrawal of the British joint Services training team in Zambia by the end of the year, there has been no development since my right hon. Friend the Prime Minister made a statement on his talks

with President Kaunda in London last July.

Mr. Biggs-Davison: Are we then to take it that it is incorrect that Zambia is asking Italy for assistance with military aviation?

Mr. Morris: I cannot answer for the Zambian Government. I have no information.

Mr. Hooley: In the light of the deteriorating situation in respect of Rhodesia, would it not be wise, and have we not an obligation, to enter into some conversations with the Zambian Government about their defence problems?

Mr. Morris: The Prime Minister made a suggestion to the Zambian Government some time ago that there could be a joint study of Zambia's defence requirements, and the Zambian Government have not so far taken up that offer. It is a matter for the Zambian Government.

Mr. Rippon: If the Minister cannot answer for the Zambian Government, will he answer for the British Government? What representations have the British Government made to the Zambian Government about their proposal for the withdrawal of R.A.F. officers? Will we tell the Zambian Government that if R.A.F. officers are not good enough for them they can do without our defence co-operation?

Mr. Morris: There is another Question about the withdrawal of R.A.F. officers. Certainly, they have made this request. It is a matter entirely for them in the terms of the agreement which was published as a Command Paper.

Malaysia (Internal Law and Order)

Mr. Biffen: asked the Secretary of State for Defence if he will set out the terms of the Treaty with Malaysia which permit or require the use of personnel in maintaining internal law and order there.

Mr. Dalyell: asked the Secretary of State for Defence what are the provisions of the Treaty with Malaysia requiring the use of British personnel in maintaining internal law and order.

Mr. John Morris: The provisions of the Anglo-Malaysian Defence Agreement are concerned with external defence and assistance in the training and development of the armed forces of the Federation of Malaysia. As has already been made clear by my noble Friend the Under-Secretary of State for Defence for the Royal Air Force in another place on 12th June, the maintenance of civil law and order in the country is entirely a matter for the Malaysian Government, police and armed forces.—[OFFICIAL REPORT, House of Lords; Vol. 302, C. 771–2.]

Mr. Biffen: May we, then, assume that it will not be the policy of the Government to supply either equipment or personnel designed to promote the existing domestic political arrangements of Malaysia?

Mr. Morris: My noble Friend the Under-Secretary dealt with the question of troops in another place. It is a hypothetical question. As regards the equipment, the Malaysian Government asked us whether we would supply some items of military equipment, and we have told them that we would be willing to supply the items requested, subject to their being available and to there being agreement on the method of payment.

Mr. Dalyell: May we have a clear understanding that not even any scope for excuse will be given for people saying that we can be drawn into a conflict between Malays and Chinese?

Mr. Morris: I am confident that this would not be our intention.

Multi-Rôle Combat Aircraft

Mr. Frank Allaun: asked the Secretary of State for Defence if he will estimate the approximate cost of each of the 330 multi-rôle combat aircraft he proposes to order, and, separately, the total approximate development cost; and if he intends to publish such estimates before finally deciding to proceed.

Mr. John Morris: As my right hon. Friend the Minister of State, Ministry of Technology stated on 16th April, it is not the normal practice to give cost estimates of this nature.—[Vol. 781, c. 1133]

Mr. Allaun: But is it not very serious that, outside this Chamber, on the day after a statement was made in this Chamber, an estimate was given by the Ministry of the little sum of £675 million as our share of the cost? Since these estimates have been wildly exceeded in the past, may we have some guarantee that it will be less than that sum and certainly not more?

Mr. Morris: At this very early stage in this most important project it is not possible to give detailed estimates of the kind my hon. Friend requires. There are a number of stages in this project. We have completed the first stage and are now in the project definition stage. That is all we are committed to now, and the object of this, among other things, is to obtain more accurate estimates of the aircraft costs to be incurred. Our financial commitment so far is only to the project definition phase and should amount to £4 million.

Mr. Dance: Is it not time that some of the ancillary sophisticated equipment used by the Services, particularly the R.A.F., was provided by British firms which for some time ahead have no orders for this advanced type of aircraft?

Mr. Morris: Naturally, I am sure that we are all concerned to ensure that British firms have a proper share of this major collaborative project. British firms will be invited in due course. There is another Question about the engine.

Mr. Allaun: On a point of order, Mr. Speaker. I beg to give notice, that, in view of the unsatisfactory nature of that reply, I shall raise this matter on the Adjournment as soon as possible.

Recruitment

Mr. Scott-Hopkins: asked the Secretary of State for Defence what are the latest recruiting figures for the Army, the Royal Navy and the Royal Air Force; and if he will make a statement.

Mr. John Morris: In April this year recruits to the Royal Navy, the Army and the Royal Air Force numbered 87, 1,932 and 667 respectively. Further details are available in the Vote Office. The figures for May are not yet available. There is no total recruiting requirement in the 1969 Statement on Defence Estimates.

Mr. Scott-Hopkins: Are not these figures much below what is needed even to fulfil existing commitments? Are we not 10,000 men short in the Army alone? What do the Government intend to do to improve the position? Is the three-year engagement working? Does the hon. Gentleman think that the new pay proposals will help?

Mr. Morris: Yes, Sir; I agree that the figures are below what we require. However, there has been a very slight improvement over the last few months, although it is so slight that it would not be right for me to place too much emphasis on it. We hope that the pay proposals we have announced will play a significant part in improving the situation, and we are doing a number of other things as well.

Mr. Ramsden: asked the Secretary of State for Defence what is the present trend in Army recruiting; and if he will make a statement.

Mr. Boyden: The introduction of the shorter engagement announced in the House during the defence debate has already helped to improve recruiting, and I hope to see further improvements as a result of the increases in pay and the proposed review of the pay structure which were announced in the House last week.

Mr. Ramsden: Is the hon. Gentleman aware that, although we have not debated this subject for a few months, concern in the House and the country about the continued disappointing trend in recruiting as evidenced by the figures given earlier is still grave? Will not the Government give the appearance of a rather less leisurely and more urgent approach to the problem and at any rate give the impression that they are proposing more constructive measures to tackle it?

Mr. Boyden: The Government's approach is not leisurely. The three-year engagement has only recently been introduced and appears to be a success. The Press reception of the new pay arrangements has been favourable, and from my discussions with soldiers I believe that they are looking forward to the new pay arrangements. All these things seem to be helping considerably.

Mr. Scott-Hopkins: What is the shortfall? Is the hon. Gentleman able to give an assurance that even now we are able to meet our commitments not only in Europe but in the Near East?

Mr. Boyden: We are certainly able to meet our commitments, but we should like considerably more recruits. It is much too early yet to say how we shall get along.

Mr. Goodhart: asked the Secretary of State for Defence what further action lie intends to take in 1969 to improve recruiting for the armed forces.

Mr. John Morris: Substantial pay changes were announced to the House by my right hon. Friend the Secretary of State for Defence on 16th June.
We are also increasing our expenditure on recruiting publicity, modernising the recruiting organisations and extending the number of "Open Days" held at Service establishments.—[Vol. 785, c. 38–48.]

Mr. Goodhart: Does the hon. Gentleman recall that the main reason for leaving the Services given to the Prices and Incomes Board by officers and other ranks was uncertainty about career prospects? Does he recognise that this has an inhibiting effect on recruitment? Will he urgently turn his attention to reshaping the career structure of the Services in the coming months?

Mr. Morris: Career prospects play an important part in recruiting men to the Forces, but pay, too, is very important. I know that the hon. Gentleman will join me in welcoming the adoption by the Government of the proposals of the National Board for Prices and Incomes on military salaries.

Mr. Edward M. Taylor: asked the Secretary of State for Defence what was the total net recruitment to the Army in the first five months of 1969; and what were the comparable figures in the first five months of each of the previous four years.

Mr. Boyden: Figures for May are not yet available. With your permission, Mr. Speaker, I will circulate the figures for the first four months of 1969 and the


comparable figures for the previous four years in the OFFICIAL REPORT.

Mr. Taylor: Are not the figures of net recruiting disturbing and disappointing, particularly when we have a big increase in unemployment? Is the Minister certain that we shall be able to fulfil our responsibilities without resorting to conscription?

ADULTS AND YOUNG SOLDIERS
JUNIORS







(1)
(2)









Inflow
Outflow
Net loss or gain
Inflow
Outflow


First Four Months of:







1965
…
…
…
…
9,176
7,896
+1,280
1,400
508


1966
…
…
…
…
8,087
7,389
+698
1,616
472


1967
…
…
…
…
8,001
6,936
+1,065
1,531
497


1968
…
…
…
…
5,429
8,052
-2,623
1,459
514


1969
…
…
…
…
5,952
7,837
-1,885
1,391
671


(1) Inflow includes recruits from civil life, rejoined reservists and boys maturing to adult service.


(2) Outflow includes recruit and trained soldier wastage, normal run outs and redundancy.

Minley Manor

Mr. Scott-Hopkins: asked the Secretary of State for Defence how long it is since Minley Manor was vacated by the Staff College; what has been the annual cost to public funds of maintaining the property since then; for what purpose it is now being used; and what plans he has for its future use.

The Under-Secretary of State for Defence for the Royal Navy (Dr. David Owen): The Army Staff College moved out of Minley Manor in August last year and it has since been under care and maintenance at a cost of £7,174 to date. Future plans for the building remain at present as stated in the 1966 Defence White Paper.

Mr. Scott-Hopkins: Is not this disgraceful? The house has been on the hands of the Ministry for over a year standing empty. Is there just one officer stationed in this enormous place? What does the hon. Gentleman think he is going to do with it? Surely the Ministry cannot go on paying this cost.

Dr. Owen: Money is spent on such items as the minimum of heating and ventilation in order to prevent deterioration and on keeping the garden tidy and cultivated. It would be a false economy to do less.

South-East Asia Treaty Organisation

Mr. Goodhew: asked the Secretary of State for Defence what forces are

Mr. Boyden: The figures are not as good as we would wish, but, comparing 1969 with 1968, the inflow of adults and young soldiers is 500 up. The inflow of juniors in 1969, 1968 and 1965 was much the same. Therefore, the situation is not as bad as some hon. Members make out.

Following are the figures:

declared to the South-East Asia Treaty Organisation; and what forces will be declared to the Organisation in 1971–72.

Mr. John Morris: It is not the practice to give this kind of information. We have, however, made it clear that we shall not declare forces to S.E.A.T.O. contingency plans when the withdrawal of our forces from Malaysia and Singapore is completed.

Mr. Goodhew: Like the Prime Minister yesterday, the hon. Gentleman has insisted today that there is no automatic commitment in this area after 1971, whereas Lord Shepherd last month was saying that Britain would maintain a capacity to send a significant force to the area after our withdrawal from Malaysia and Singapore. Who is right? What is going on? Are the Government saying that they regard themselves as committed to S.E.A.T.O. or not?

Mr. Morris: I am sure that the hon. Gentleman fully understands the distinction. This matter has been canvassed from time to time in many defence debates in which he and I have taken part. There is a difference between an automatic commitment and what my noble Friend was referring to as our general capability. This has been made clear in our defence debates and is one of the points which my right hon. Friend the Prime Minister was emphasising yesterday.

Mr. Luard: By deciding to maintain capacity to send forces to the area rather


than maintain them permanently on the spot, are not the Government putting themselves in the same position as many other members of S.E.A.T.O., including the United States until the Vietnam war began?

Mr. Morris: We have declared our policy. The basic policy of withdrawing from the Far East on the terms I have referred to stands completely unchanged.

Mr. Rippon: Did Lord Shepherd's speech in Bangkok represent Government policy or do the Prime Minister's statements yesterday? They both cannot.

Mr. Morris: I have been pointing out in the course of answers to three questions that there is no inconsistency. There is a complete distinction, which my right hon. Friend the Prime Minister referred to yesterday, between an automatic commitment and a general capability.

North Atlantic Treaty Organisation (Canadian Forces)

Mr. Wingfield Digby: asked the Secretary of State for Defence what conversations he has had with our North Atlantic Treaty Organisation allies with a view to making good reductions by Canada in the conventional forces she contributes to the Alliance.

Mr. Moyle: asked the Secretary of State for Defence what reductions the Canadian Government has proposed to the North Atlantic Treaty Organisation in Canadian forces in Europe; and what discussions Her Majesty's Government has had with the Canadian Government on the matter.

Captain W. Elliot: asked the Secretary of State for Defence what action he is taking in connection with the proposed withdrawal of Canadian forces from Europe.

Mr. John Morris: The Canadian Government have put forward proposals for the conversion of their present brigade group in Germany to an air-transportable combat group as well as a separate air element. Consultations on these proposals are in progress within N.A.T.O. but it is not yet possible to say what the outcome will be. In company with the Defence Ministers of other N.A.T.O.

countries, my right hon. Friend has expressed his concern at the proposals to the Canadian Government.

Mr. Wingfield Digby: Does not this decision leave a serious gap in Germany, in particular in the British-Canadian quarter of the Allied Forces Central Command? Is it not essential that other troops should be found to replace the Canadians?

Mr. Morris: The hon. Gentleman is quite right. If the Canadian proposal went through—and it has so far only been tabled for discussion—it would leave a gap, and, obviously, the N.A.T.O. countries would have to consider the position.

Mr. Moyle: Does not my hon. Friend agree that the British decision to concentrate all our defence forces on Europe was inherently likely to produce some sort of reaction like this from North America? Will he join me in expressing the hope that the Americans will not get the same idea?

Mr. Morris: Because we are showing a lead in concentrating on Europe, I hope that this will be an example which other N.A.T.O. countries will follow. It is important to stress that, within our economic resources, we should ensure that we make the most effective military contribution possible in Europe.

Captain Elliot: Did the Secretary of State explain to the Canadians that one cannot defend one's country in these days from within one's own frontiers? Did he emphasise to them the important rôle filled by British forces east of Suez in the defence of the West as a whole?

Mr. Morris: I cannot express in detail what was discussed in the course of the deliberations on this proposal. All I can say now is that we did express our concern.

Mr. Ramsden: As indicated by the hon. Member for Lewisham, North (Mr. Moyle), would not the Government be in a stronger position to protest against the Canadian action if they had not done the same thing themselves? Will the hon. Gentleman reaffirm that it is not the Government's intention to contemplate any further reduction in B.A.O.R.?

Mr. Morris: The right hon. Gentleman knows that what we have sought to


do is increase the forces available to Europe. So his supplementary question does not arise.

North Atlantic Alliance (European Defence Policy)

Mr. Wingfield Digby: asked the Secretary of State for Defence what progress he is making in securing a European policy on defence questions within the North Atlantic Alliance.

Mr. John Morris: A third informal dinner, attended by the Defence Ministers of a number of the European members of N.A.T.O., including my right hon. Friend the Secretary of State for Defence, took place in Brussels on 27th May, 1969. A wide range of defence matters was discussed, including the possibility of greater European co-operation in arms procurement.

Mr. Wingfield Digby: While giving the Secretary of State full credit for these working dinners, may I ask whether they could not now progress to formal meetings?

Mr. Morris: What is important is that the European Defence Ministers, whether in formal meetings or at working dinners, should work together as much as possible. I do not think that the form of meeting matters so much.

Mr. Hugh Jenkins: Is it not desirable that the outcome of the discussions should be an approach to the other side with a view to scaling down armaments all round? Is it still the policy of the Government to bring this about with a view to securing a general withdrawal of forces?

Mr. Morris: Certainly it is the policy of the Government to try to ensure on both sides in Europe a reduction of armaments.

Mr. Rippon: Is it still the Government's policy to secure an independent European defence capability, nuclear as well as conventional?

Mr. Morris: The right hon. and learned Gentleman knows exactly what the position of the Government is.

Mr. Eldon Griffiths: On a point of order. Mr. Speaker. The Minister has

just made reference to information apparently possessed by him and my right hon. and learned Friend the Member for Hexham (Mr. Rippon). Can the rest of us know what it is?

Mr. Speaker: That is a point of curiosity, not of order.

Espionage Satellites and Orbiting Missiles (Overflights)

Mr. Brooks: asked the Secretary of State for Defence what steps he plans to take to prevent overflights by espionage satellites and orbiting missiles which infringe the air space of the United Kingdom.

Mr. John Morris: The transit of satellite vehicles cannot be prevented. Our defence against any misuse of them in contravention of the Outer Space Treaty of 1967 lies in detecting them promptly and in the maintenance of a credible Western deterrent.

Mr. Brooks: Does my hon. Friend recall that the Soviet Union, quite understandably, regarded the U2 overflight as an infringement of sovereignty and took appropriate action? Can he clarify what is the position in international law if Britain or, for that matter, any other country, similarly takes appropriate action against an espionage satellite?

Mr. Morris: My hon. Friend has put his finger on a very difficult point. As the House was informed in answer to a Question by my hon. Friend himself on 21st March, the height to which national control of air space is exercised is a question of international law which has yet to be resolved. There is thus no generally agreed basis on which an infringement of British air space by satellite vehicles could be claimed. That is the position.

Mr. Marten: Is it not part of the difficulty that an orbiting satellite can be of great value to mankind when it is searching out the resources of the earth and that it is difficult to distinguish between one which does that and one which may be looking for military matters?

Mr. Morris: The hon. Gentleman is perfectly right. What is important from our point of view is that in the interests of our defence we should know what is happening and have speedy detection.

Malagasy

Sir F. Bennett: asked the Secretary of State for Defence what has been the cost to the Exchequer in terms of cash and foreign exchange, respectively, of the maintenance of the Majunga air base in Malagasy during the last 12 months, and since its inception.

Mr. Hastings: asked the Secretary of State for Defence what is the annual cost to the Exchequer of the Royal Air Force installations and operations from Malagasy in connection with the Rhodesian policies of Her Majesty's Government.

Mr. John Morris: Extra costs, in budgetary terms, of operating the detachment of Shackleton aircraft at Majunga have amounted to about £360,000 in the last year and about £920,000 all together. In foreign exchange terms the two figures are £176,000 and £500,000.

Sir F. Bennett: Irrespective of the wider policies involved in whether we should have sanctions, can the Minister say how long Her Majesty's Government will continue to justify a policy which involves the spending of money to this extent on preventing petrol from going through Beira when it goes through Lourenco Marques just the same to supply the Rhodesians with all they want and when they can buy petrol in Salisbury more cheaply than it can be bought in this country?

Mr. Morris: The policy will continue so long as it is needed.

Mr. Biggs-Davison: asked the Secretary of State for Defence whether he will make a statement on the blockade of Portuguese ports in Mozambique and air operations from the territories of the Malagasy Republic.

Mr. John Morris: I have nothing to add to my right hon. Friend's reply to the hon. Member for Mid-Bedfordshire (Mr. Hastings) on 7th May.—[Vol. 783, c. 87.]

Mr. Biggs-Davison: As this costly charade is supposed to be in furtherance of an international policy of sanctions, how much money, or assistance, has been contributed by any other member of the United Nations?

Mr. Morris: I cannot answer that question without notice. The additional cost to public funds of our patrol has been £1,500,000 and, in accordance with the United Nations resolution, our contribution has been successful.

Mr. James Johnson: Is my hon. Friend aware that we on these benches would wish him to intensify the blockade and step up sanctions against the Smith régime in Rhodesia?

Mr. Morris: My hon. Friend will know that that question should be addressed to my right hon. Friend the Secretary of State for Foreign and Commonwealth Affairs.

Sir Knox Cunningham: On a point of order, Mr. Speaker. Owing to the unsatisfactory nature of that reply, I shall raise the matter again.

South Africa (Defence Orders)

Mr. Boyd-Carpenter: asked the Secretary of State for Defence whether he has considered the recent South African defence programme, details of which have been sent to him; and whether he will seek to secure a substantial proportion of the orders arising from this programme for British companies.

Mr. John Morris: As the right hon. Member will know, our policy on the export of arms to South Africa is in line with the resolution of the United Nations Security Council in 1964.

Mr. Boyd-Carpenter: As what is now involved is a major rearmament programme, involving valuable orders for many years, will not the Government reconsider the matter? Can the hon. Gentleman tell the House what useful purpose is served by denying employment and orders to British shipyards and factories when our colleagues in the United Nations are only too glad to supply them?

Mr. Morris: Her Majesty's Government have no intention of changing their policy, which is in compliance with the United Nations resolution.

Mr. Molloy: Will my hon. Friend also take note of the fact that honour and decency are involved—[Interruption.] I know that hon. Members opposite do not understand that. Will my hon. Friend


remember that we are talking of a country which embraces many of the evil and repugnant features of the former German Third Reich, that our early attitude to that country was a mistake? The Tories are making the same mistake again. I hope that we shall not follow their example.

Mr. Rippon: Will the hon. Gentleman answer my right hon. Friend's Question? What is the purpose of the Government's futile and stupid policy?

Mr. Morris: The right hon. and learned Gentleman is entitled to express himself in whatever way he wishes. What we have decided is in accordance with

The overall strengths, including officers, other ranks, young soldiers/airmen, boys and women of each of the services separately, on 1st April, 1964 and 1st April, 1969 are as follows:—





Royal Navy
Royal Marines
Army
R.A.F.
Total


As at 1st April, 1964
…
…
88,290
9,344
189,418
136,061
423,113


As at 1st April, 1969
…
…
81,596
8,588
178,526
113,954
382,664

R.A.F. Airfields, West Germany (Ground Defence)

Mr. John Hall: asked the Secretary of State for Defence if he is satisfied that the ground defence of aircraft and installations on Royal Air Force airfields in West Germany is adequate to meet all foreseeable attacks; and if he will make a statement.

Mr. John Morris: Our aircraft in Germany would be protected in war against attack from the air by the N.A.T.O. air defence system, local antiaircraft defences, concrete revetments and the dispersal of aircraft. We are considering with the N.A.T.O. military authorities what further degree of protection may be required for R.A.F. aircraft and installations in Germany.

Mr. Hall: Is the hon. Gentleman aware that considerable anxiety has been expressed about what are described as inadequate defences for our aircraft and installations on the ground and the inadequate strength of the ground forces necessary to protect airfields against sabotage? Is he saying that there is no ground for that anxiety?

Mr. Morris: I am fully aware of the importance of the hon. Gentleman's first question. I have seen these things at

the United Nations resolution. In honour, that is the only decision we can take.

Service Strengths

Mr. Ramsden: asked the Secretary of State for Defence what was the overall strength, including officers, other ranks, young soldiers/airmen and women of each of the services separately, on 1st April, 1964, and 1st April, 1969, respectively.

Mr. Boyden: As the answer contains a number of figures I will, with your permission, Mr. Speaker, publish it in the OFFICIAL REPORT.

Following is the information:

first hand. What we are doing is working together with our N.A.T.O. colleagues to ensure that we achieve an improvement of the situation. The problem is to balance active air defence with passive protection and dispersal and to get the optimum mix.

Mr. Ronald Atkins: Would not my hon. Friend agree that these R.A.F. airfields would be far more secure in Britain than in West Germany?

Mr. Morris: I do not agree about that. The R.A.F. in Germany fulfils a very important part of our rôle in protecting the defences of the United Kingdom and the remainder of the territory which is part of N.A.T.O.

H-bombs and Polaris Missile Warheads (Electronic Locks)

Mr. Frank Allaun: asked the Secretary of State for Defence why British H-bombs and Polaris missile warheads have not been fitted with electronic locks to prevent explosion by accident or without Governmental approval; and if he will now provide such locks.

Mr. John Morris: I am satisfied with the present arrangements for the protection against accidental firing and for the political and physical control of British nuclear weapons.

Mr. Allaun: If our precautions are adequate, why have America and Russia gone to the expense of fitting such locks? Might they not prevent an H-bomb accident which could trigger off a third world war?

Mr. Morris: I cannot answer for either of those two Governments, and they are the only authorities who could give reasons for doing this. My hon. Friend, who studies these matters, will know that the United States is in a special position in that it provides nuclear warheads allocated to launch vehicles and aircraft of other N.A.T.O. countries, and the fitting of electronic locks could contribute to the fulfilment of the United States legal requirement to retain custody and control of these warheads. I have no details of any electronic locks fitted by the Soviet Union to its nuclear weapons.

Mrs. Ewing: Is the hon. Gentleman aware that some of us who live in the industrial belt of Scotland and who have these deadly weapons situated on our doorstep are made more concerned by his answer? Is not the best way in which to avoid an explosion not to have these weapons at all?

Mr. Morris: My answer will only add to the concern if the hon. Lady does not believe what I say.

Russian Forces (Indian Ocean)

Mr. Ridsdale: asked the Secretary of State for Defence what estimate he has made of the recent deployment of Russian forces in the Indian Ocean; and if he will make a statement.

Mr. John Morris: Over the last six months the number of Russian warships in the area has fluctuated from six to the present level of one.

Mr. Ridsdale: Would the hon. Gentleman comment on the recent Russian movement off the Seychelles reported recently in the Daily Telegraph? What action has been taken, up to 1971, to protect British interests in the Indian Ocean?

Mr. Morris: I understand that there has been movement of Russian ships, as the hon. Member said, off the Seychelles and that they have sited buoys on the high seas. Since these were the

high seas, they required no permission and could not be prohibited.

Mr. Frederic Harris: Does the hon. Gentleman fully understand and appreciate that the Russian trawlers in the Indian Ocean are considered to be disguised supply ships servicing Russian submarines in the area?

Mr. Morris: I do not think that it would be in the interests of security for me to give details of our knowledge of this matter.

Select Committee on Defence

Mr. Ridsdale: asked the Secretary of State for Defence when he will now move to appoint a Select Committee on Defence.

Mr. John Morris: I have nothing to add to the speech made by my right hon. Friend the then Parliamentary Secretary to the Treasury in the course of the debate on the Consolidated Fund (No. 2) Bill on 26th March.—[Vol. 780, c. 1467–71.]

Mr. Ridsdale: When can we have a statement from the Secretary of State about this very important subject following the most sympathetic speech in the Adjournment debate by the then Patronage Secretary? Surely at a time when defence problems are becoming more technical and scientific, we need a bipartisan approach, a sharing of defence problems across the Floor of the House?

Mr. Morris: I am aware of the hon. Gentleman's view and I have studied his speech. I am not without sympathy for what he says. As my right hon. Friend the then Patronage Secretary indicated, this was a matter for consideration, together with all the other Select Committees, to examine where we stood in this new and important experiment. As to defence, we have not been immune from probing by a select committee; hence the recent important report by the Select Committee on Science and Technology.

Mr. Luard: Would my hon. Friend not agree that this Government have gained considerable credit and good will in the country from their action in setting up a number of Parliamentary Committees, but that the real test of their intentions will be whether they are prepared to set up Committees on such


important questions as foreign affairs and defence?

Mr. Morris: I am sure my hon. Friend's view will be noted by my colleagues responsible for these matters. I would stress that we have had a most important report on defence dealing with pertinent questions.

West Germany (Offset Agreement)

Mr. Goodhart: asked the Secretary of State for Defence whether he will make a statement about the payment of support costs for British forces in Germany.

Mr. John Morris: I presume the hon. Member is referring to the offset agreement, and, as the House will know, negotiations on a new agreement are now in progress with the Federal German Government.

Mr. Goodhart: In these negotiations, have our representatives abandoned the recent practice of trying to persuade the Germans to buy British Government securities as part of the offset agreement as this may merely increase the long-term indebtedness of the country?

Mr. Morris: I cannot comment on this matter at this stage. The hon. Member would be the first to appreciate that these negotiations are going on now.

Mr. Shinwell: In these negotiations, will the Government take a firm line with the West German Government, in view of their superior financial position and their bragging about prosperity? Could not they afford to make a larger contribution, particularly to the civilian personnel ancillary to our forces in Germany, thus helping this country?

Mr. Morris: I hope that we shall have a good contribution. Certainly I hope that the final agreement will be at least as good as last year's.

Mr. Rippon: If the hon. Gentleman cannot tell us about current negotiations, will he tell the House how much of the so-called offset costs are represented by German investments in Government bonds on which we have to pay interest, and which a future Government will have to repay altogether in about 1972?

Mr. Morris: If the right hon. and learned Gentleman puts down a Question

to the responsible Minister I am sure he will get an answer to that.

North Atlantic Treaty Organisation Nuclear Planning Group

Mr. Boston: asked the Secretary of State for Defence if he will make a statement about the recent meeting of the North Atlantic Treaty Organisation Nuclear Defence Committee.

Mr. John Morris: At the meeting of the N.A.T.O. Nuclear Planning Group in London on 29th and 30th May, Ministers continued their review of nuclear defence planning. They welcomed the progress that had been made on the preparation of guidelines for the N.A.T.O. military authorities in respect of the tactical use of nuclear weapons within the concept of N.A.T.O. deterrent strategy; and gave instructions for the continuation of work in this field. Ministers also considered strategic aspects of N.A.T.O.'s nuclear defence and further arrangements for consultation within the alliance on the possible use of nuclear weapons.

Mr. Boston: Can my hon. Friend say what further discussions are taking place about the Anglo-German proposals on the use of tactical nuclear weapons? Could he also comment on the recent report of an international committee of experts that the Soviet Union would be able to counter United States Polaris submarines by the 1970s? What consideration has been given to that report?

Mr. Morris: Dealing with the first part of my hon. Friend's question, the Anglo-French paper on guidelines was generally welcome and is now being revised for the next meeting, in the light of comments, with a view to its adoption for general political guidance. On the second point about vulnerability, I am not sure to which report my hon. Friend is referring. If he is referring to a comment made by the American Defence Secretary, he was making the point that there is no permanence in the quality of some of our deterrents.

Sir Knox Cunningham: When are we to have a statement from the Secretary of State, whose absence from the House we regret, about the British independent nuclear deterrent?

Mr. Morris: I am sure that if the hon. and learned Gentleman puts down a


Question asking for a statement, my right hon. Friend will, the next time he answers Questions, seek to deal with that.

Mr. Rippon: Is it the Government's policy to encourage Anglo-French co-operation on nuclear defence, particularly in the light of this fresh approach to the new French Government?

Mr. Morris: We should wait for an indication of the views of the French Government on this. This is a matter for them and I am sure that they, having sometime in 1966 withdrawn from their rôle in N.A.T.O., would be very welcome to play a bigger part than they now do.

North Atlantic Treaty Organisation Defence Planning Committee

Mr. Boston: asked the Secretary of State for Defence if he will make a statement about the meeting of the North Atlantic Treaty Organisation Defence Planning Committee in Brussels.

Mr. John Morris: The results of the meeting of the Defence Planning Committee in Ministerial session on 28th May, which my right hon. Friend the Secretary of State for Defence attended, are set out in the official communiqué, which I will, with permission, circulate in the OFFICIAL REPORT.

Mr. Boston: Would my hon. Friend accept that many people will share his concern about the regrettable decision of the Canadian Government to withdraw unilaterally from Europe? Could he say what effect that is likely to have on the prospects of mutual force reductions? Can he specify what further consideration is being given to an approach to the new French Government, to get them back into N.A.T.O.?

Mr. Morris: Dealing with the Canadian position, this proposal by them, as I said earlier, is to convert and reduce their forces, not, as I understand it, to withdraw. They have a brigade group there. This issue is still to be determined. As for the French, it was a French decision to withdraw their forces in 1966 from the Alliance. We regretted it at the time and would welcome the return of France to play a full part in the affairs of N.A.T.O. This is a matter for France herself.

Mr. Eldon Griffiths: Regarding co-operation with France, can the hon. Gentleman confirm that Admiral Le Fanu was most warmly welcomed at the French Government's submarine missile station? Would he accept that an Anglo-French nuclear entente would be a very helpful step towards the European profile which the Government wish to see in N.A.T.O. and which might open the door to the Common Market?

Mr. Morris: I am not able to comment on Admiral Le Fanu's moves, but I am sure that he would be generally welcome wherever he went. On the second point, I repeat that we would welcome the return of France to play a full part in the affairs of the North Atlantice Alliance.

Following is the official communiqué:

The Defence Planning Committee of the North Atlantic Treaty Organisation met in ministerial session on Wednesday, 28th May, 1969.

2. Ministers reviewed the general situation as it has developed since their last meeting, and took account of the continued strengthening of Soviet military and naval power and its current deployment. They noted the status of certain qualitative improvements undertaken by N.A.T.O. countries arising out of previous decisions.

3. Ministers recalled the need for cohesion and solidarity in the alliance and confirmed that the continued effectiveness of collective defence is a stabilising factor and a necessary condition for effective détente policies. They reaffirmed the validity of the current N.A.T.O. strategy based on forward defence and appropriate response to any aggression. This requires a credible conventional and nuclear deterrent, including the strategic nuclear deterrent force—the presence of substantial high quality, flexible and mobile North American and European conventional forces in addition to supporting tactical nuclear forces in the European area—an effective overall maritime posture—and adequate ready reinforcements. They reaffirmed their continuing determination to make appropriate contributions on a collective basis to support this strategy and to ensure that the overall military capability of N.A.T.O. should not be reduced except as part of a pattern of mutual force reductions balanced in scope and timing.

4. In the light of the above, and taking account on the one hand of the increased level of defence expenditure of the Warsaw Pact and on the other of the need to maintain economic growth and financial and social stability, ministers gave guidance to the N.A.T.O. military authorities within the framework of which they will make their proposals for the level, quality and posture of the N.A.T.O. defence forces for the period 1971–75 On the assumption of a moderate overall increase in defence expenditure ministers


emphasised the need to improve the effectiveness of N.A.T.O.'s forces and in particular their conventional capability, flexibility and mobility. They underlined the importance of increased efficiency and of greater co-operation among members of the Alliance in order that the resources available for defence may be used to the best effect. In particular they stressed the need for intensifying co-operative approaches for research and the production of armaments and their standardisation.

5. Mr. Cadieux, Canadian minister of National Defence, explained to the Defence Planning Committee the policy and general intention of his government concerning the Canadian forces in Europe. The Defence Planning Committee discussed procedures for consultation. The first step will be a discussion of the Canadian proposals between the Canadian and N.A.T.O. military authorities in the immediate future.

6. Ministers approved a report on mobilisation and force expansion plans, noting in particular their importance for the major allied commands.

7. On the basis of the concept agreed in January, 1969, ministers approved the establishment of a naval on-call force for the Mediterranean and requested the N.A.T.O. military authorities to prepare a programme including exercises and port calls.

8. In considering the problem of the defence of the flanks and bearing in mind among other things increased Soviet naval activity in the North Atlantic and the Mediterranean, ministers noted the status of plans for the improvement of local forces and for reinforcements.

9. The next ministerial session of the Defence Planning Committee will be held in Brussels in December, 1969.

Royal Air Force Personnel (Claims)

Sir D. Renton: asked the Secretary of State for Defence when he will come to a decision with regard to the claims made by Royal Air Force personnel who were posted to the United States of America for work on the F111, on the cancellation of which their tour of duty there was curtailed with financial loss to the men concerned.

Mr. Boyden: I hope a decision will be reached soon whether payments can be made additional to those authorised in February. My noble Friend will write to the right hon. and learned Gentleman as soon as possible.

Sir D. Renton: Is it not a fact that these men were encouraged to go to the United States and to take their families with them, that they incurred great expense in establishing homes there for their families, and that when the F111

was cancelled 18 months ago they found themselves heavily out of pocket? Will the hon. Gentleman ensure that compensation is given quickly and adequately?

Mr. Boyden: I am sorry for the delay. The gap between the claimants and my noble friend the Under-Secretary of State for Defence for the Royal Air Force has been narrowed. Another look is being taken at the rules to see whether in future things can be done rather better.

United States Forces (Chemical and Biological Agents)

Mr. Lubbock: asked the Secretary of State for Defence (1) what is Her Majesty's Government's policy regarding the carrying by the United States Air Force of chemical and biological weapons in United States aircraft over British territory;
(2) if he will give details of the stocks of nerve gases or other chemical and biological warfare agents maintained by the United States forces in Great Britain.

Mr. John Morris: No stocks of biological or chemical warfare agents are maintained by the United States forces in this country, and no weapons of this kind are carried over British territory by aircraft of the United States Air Force.

Mr. Lubbock: Is the hon. Gentleman aware that that statement will be very reassuring to the people of this country? Will he give an undertaking that no such flights will be permitted by Her Majesty's Government or that no stocks of these weapons will be allowed to be maintained in this country? Would he agree that if we were to allow this to be done it would be a serious breach of our undertakings under the Geneva Convention of 1925?

Mr. Morris: Since we have received no such request, the question does not arise.

Sir Harmar Nicholls: On a point of order. Mr. Speaker. Since an hon. Member is responsible for the accuracy of his actions or statements, were not the last two Questions dangerous in the absence of grounds for the words in them?

Mr. Speaker: The hon. Gentleman has answered his own point of order. An hon. Member is responsible for the


accuracy of the information in his Question.

Mr. Lubbock: rose—

Mr. Speaker: Order. Question Time goes on.

Mr. Brooks: Is my hon. Friend aware that it was only with the very greatest difficulty that the United States Congress discovered many of the facts relating to the movement of these weapons across the territory of the United States? Is he absolutely satisfied that Her Majesty's Government are being provided with full and accurate information on this matter?

Mr. Morris: I have made my inquiries, and I am in no doubt whatever about the facts that I have given the House.

Mr. Lubbock: rose—

Mr. Speaker: Perhaps the hon. Gentleman would raise his point of order at the end of Questions.

Rifle Ammunition

Mr. Edward M. Taylor: asked the Secretary of State for Defence whether he will make a statement on the accuracy and quality of rifle ammunition provided to Her Majesty's forces.

Mr. Boyden: I would refer the hon. Member to the Written Answer I gave on this same point on 18th June.—[Vol. 785; c. 106.]

Mr. Taylor: Is it not a fact that the United Kingdom specification for 7–62 millimetre ammunition is higher than the N.A.T.O. equivalent? Is the hon. Gentleman satisfied that these specifications are being adhered to?

Mr. Boyden: I have not had representations from the sporting side of rifle shooting, nor from within the Ministry of Defence. I therefore assume that the position is much more satisfactory than it would appear to be from the newspapers.

Atlantic Nuclear Force

Mr. Eldon Griffiths: asked the Secretary of State for Defence if he proposes to undertake further discussions in the North Atlantic Treaty Organisation with a view to establishing an Atlantic nuclear force.

Mr. John Morris: No substantive discussion has taken place for about three years, and none is in prospect.

Mr. Griffiths: Since it is the Government's declared policy to establish a European personality within the N.A.T.O. Alliance, will the hon. Gentleman say quite clearly whether it is their policy that such a European element should have nuclear capability?

Mr. Morris: I am sure that the hon. Gentleman will know that our proposals have never been formally withdrawn and that they still remain for consideration, if necessary. But progress has been made by the N.A.T.O. nuclear consultative bodies. Therefore, it seems doubtful whether this type of solution of the question of nuclear inter-dependence will find much support in future.

Mr. Rippon: Does the hon. Gentleman agree that his reply demonstrates that the Atlantic nuclear force, which was so much thought of by our Prime Minister, now represents yet another of his worthless initiatives? Will he answer the question which my hon. Friend put to him about the Government's policy in relation to Anglo-French nuclear co-operation?

Mr. Morris: I have answered that question on three occasions already. We would welcome the return of France to the N.A.T.O. fold, but this is essentially and entirely a matter for France herself. On the first part of the right hon. Gentleman's supplementary question, I am sure that he is responsible for his own words.

United States Military Aircraft (Cost)

Sir C. Osborne: asked the Secretary of State for Defence what is his revised estimate of the total cost of American military aircraft to be purchased for use by the United Kingdom for 1969; and what was the figure for each of the three preceding years.

Mr. John Morris: The estimate for 1969 is £61 million. The figures for the three preceding years are: 1968, £34 million; 1967, £15 million; 1966, £3 million. The figures represent the repayment of sums drawn under the American aircraft credit, together with payment of interest, and cash payment for certain spares not covered by credit, and the payments arising from the cancelled contract for the


F111. They do not include the cost of British-produced items.

Sir C. Osborne: As the country is being compelled more and more to borrow money from the American bankers and other international bankers, can we afford to keep buying these American aircraft?

Mr. Morris: I respect the hon. Gentleman for his views, but I am sure that he will understand that the bulk of the deliveries of these aircraft have already taken place. This matter was fully canvassed in 1966 when the Military Aircraft (Loans) Bill was before the House.

Mr. Corfield: Would the hon. Gentleman liaise with his colleagues at the Poard of Trade to see whether these figures could be more clearly stated in so far as they affect the balance of payments? At the moment it is impossible, except after a very long calculation, to see whether the balance of payments figures, as published, bring those payments into effect and, if so, what the effect is.

Mr. Morris: My right hon. Friend the President of the Board of Trade has made the position clear from time to time. However, I will pass the hon. Gentleman's remarks to my right hon. Friend if he needs further clarification.

Western Nuclear Deterrent

Captain W. Elliot: asked the Secretary of State for Defence what further action he now proposes to reinforce the credibility of the Western nuclear deterrent.

Mr. John Morris: The credibility of the Western nuclear deterrent is kept continually under review. No specific proposals affecting United Kingdom forces arise at this time.

Captain Elliot: Would the hon. Gentleman agree that in recent months the Minister of Defence has laid great stress on the fact that nothing should be said to raise any doubt that N.A.T.O. would be ready to use her nuclear weapons? If the Canadians or anybody else withdraw conventional forces from Europe, does the Minister think that this will reinforce or reduce the deterrent?

Mr. Morris: On the Canadian issue, the position of the conventional forces in

Europe, as my right hon. Friend has indicated, is important, and if there is agreement to a substantial withdrawal of Canadian forces, even though they play only a fairly small part in the total amount there, it would obviously affect the nuclear threshold.

Multi-rôle Combat Aircraft Project

Mr. Hugh Jenkins: asked the Secretary of State for Defence, having regard to the increase in the research and development costs of aircraft, what arrangements he is making for the periodical restatement of the cost of the German-Anglo-Italian swing-wing aircraft.

Mr. John Morris: An International Management Organisation has been set up to control the M.R.C.A. project and keep under review all aspects of the programme, particularly costs, on behalf of participating Governments. A major review of the programme will also be made at the end of each agreed phase, before commitment to the next.

Mr. Jenkins: Is my hon. Friend aware that if the rate of escalation were the same as that of Concorde the net cost for this country alone would not be less than £2,000 million? Will he look again at this project?

Mr. Morris: Certainly I am as anxious as the hon. Gentleman to ensure that adequate control is kept over this project. That is why it is divided into a number of phases, and each phase will be looked at in turn.

Oral Answers to Questions — QUESTIONS TO MINISTERS

Mr. Speaker: I think that the hon. Member for Orpington (Mr. Lubbock) wanted to raise a point of order.

Mr. Lubbock: On a point of order. Mr. Speaker. May I raise the question of the protection available to an hon. Member against whom an allegation is made in the middle of putting Questions?
I was putting a Question a few minutes ago when the hon. Member for Peterborough (Sir Harmar Nicholls), raising a point of order, cast a series of reflections on my integrity by denying that accurate information was contained in one of my Questions. I am not sure which one he was referring to; it was either Question No. 39 or No. 40.
The facts are that it has been revealed that the United States Air Force is transporting in transport aircraft chemical and biological warfare weapons across United States territory, and that the Prime Minister of Canada, M. Trudeau, has instituted inquiries into whether these weapons are being transported across Canadian territory—

Mr. Speaker: Order. The hon. Member must put his point of order briefly.

Mr. Lubbock: I was asking the Minister whether the Government would give information about the use of American transport aircraft to transport these weapons across British territory, and about the stocks of weapons held in this country. The Minister has given answers. I was making no statement, but asking whether these things were happening. I was asking him for information. Therefore, I would ask you, Mr. Speaker, to request the hon. Member for Peterborough to withdraw his snide insinuations and to give me an apology.

Sir Harmar Nicholls: rose—

Mr. Speaker: Order. I think that I can deal with the point of order without the help of the hon. Member for Peterborough (Sir Harmar Nicholls).
If an hon. Member attacked another hon. Member's integrity that would be something of which the Chair would probably have to take notice, but the hon. Member for Peterborough suggested that the hon. Member for Orpington (Mr. Lubbock) was inaccurate. This is not an unusual charge—[Laughter.] Order—between two Members of the House. I think that the hon. Member for Orpington is being unduly sensitive.
On the general issue which was raised during Question Time, I hope that points of order, if possible, will not be raised during Question Time, as I am anxious to protect the rights of hon. Members who have Questions on the Order Paper.
On this issue itself, an hon. Member is responsible for the accuracy of the statements which he puts in his Questions. He obviously does so in good faith. From time to time hon. Members are inaccurate. This is not the most accurate place in the world. We must recognise that.

Mr. Lubbock: But, Mr. Speaker, my Questions contained no inaccuracies; there was no statement of fact.

Mr. Speaker: Order. The hon. Member must be seized of the point I make. I am not responsible for the accuracy or inaccuracy of hon. Members' Questions. An hon. Member has the right, in a free place, to suggest to another hon. Member that he is being inaccurate. I am not the judge of that.

Mr. Brooks: On a point of order. I have deferred this point of order until the end of Question Time. It will be observed that Question No. 7, and the more recently taken Question No. 48, both deal with the multi-rôle combat aircraft, and it will also be observed that Question No. 67, in my own name, is addressed to the Minister of Technology, but is on almost precisely the same lines.
This Question of mine was tabled originally to the Minister of Defence, and was then transferred to the Minister of Technology. I would ask you, Mr. Speaker, what recourse a Member of the House has against what appears to be a completely arbitrary and anomalous decision on the part of the Department?

Mr. Speaker: I cannot prevent Ministers from transferring Questions from one Minister to another. It is a matter of the judgment of the Ministers. It is a matter which the hon. Member could have taken up with them. If he has lost a favourable place on the Question Paper because of the transfer, I am sorry, but I can do nothing about it.

INTERMEDIATE AREAS (HUNT REPORT)

The Secretary of State for Economic Affairs (Mr. Peter Shore): With permission, Mr. Speaker, I should like to make a further statement on the Report of the Committee on the Intermediate Areas under the chairmanship of Sir Joseph Hunt.
In my statement on 24th April I described the new intermediate areas in broad terms, leaving the precise boundaries to be determined after consultation with the Regional Economic Planning Councils. These consultations have now been completed and the views of other bodies have also been taken into account.
There is now available in the Vote Office the full list of 54 employment exchange areas to be included in the new seven intermediate areas—North-East Lancashire, Yorkshire Coalfield, North


Humberside, Notts-Derby Coalfield, South-East Wales, Plymouth and Leith. I am also circulating the list in the OFFICIAL REPORT.
I said on 24th April that the cost of the measures would be met out of the very substantial and growing sums being spent on assistance to industry in the development areas. The savings required will be obtained by the withdrawal of the selective employment additional payment of 7s. 6d. a week at present payable in the development areas. This will cease to be paid from the beginning of the financial year 1970–71.
This does not affect in any way payment of the regional employment premium of 30s. a week. I reaffirm our commitment to continue to pay the R.E.P. in the development areas for the minimum period of seven years from 1967. This is an important part of their very large preference in assistance to industry over the rest of the country.
The House will recall that we propose to make available for industry in the new intermediate areas assistance of the kind provided in development areas under the Local Employment Acts, excluding those loans and grants for general purposes which are made on the advice of B.O.T.A.C.
A Bill will be introduced as early as possible next Session to give effect to our proposals. Meantime, it is important that develepment should go ahead in the new intermediate areas.
First, from now on industrial development certificates will be made available in the intermediate areas on the same basis, as in the development areas.
Second, in respect of projects started in the intermediate areas from today, the Board of Trade will be ready to consider applications for building grants. Guidance to industry on this and certain necessary conditions is being issued today.
Third, eligible local authority schemes for derelict land clearance approved after 24th April, or where the main work started after that date, will be considered for 75 per cent. capital grants. These grants will be available in the new intermediate areas and the other areas which I mentioned in my previous Statement.
The Opencast Executive of the National Coal Board has valuable experience

in reclamation. We shall encourage local authorities to make full use of the executive's services as technical adviser and agent for the execution of their schemes.
The Hunt Committee rightly emphasise the human assets of the regions and the importance of industrial training. The Government will provide in the new intermediate areas the full range of development area training grants and other training assistance.
Further, the Government have considered in the light of the Hunt Report the level of benefits paid to men and women moving to new jobs away from their homes with Government assistance. The Government are arranging to bring these benefits into line with present-day requirements. A further announcement on the details and timing of these measures will be made shortly.
Regional policy is essentially a matter of priorities and we have had to apply very strict criteria in determining the new intermediate areas and their precise boundaries.
In conclusion, I wish to stress the Government's continued determination to press ahead with the progress being made in the development areas; and our intention to maintain our close watch over the changing needs of all the regions and areas of the country.

Sir K. Joseph: Is the right hon. Gentleman aware that the ending of the S.E.T. premium, a by-product of a tax which we abominate, is far preferable to any cut in the infrastructure in the development areas? It at least removes one of the elements of unfairness between competitors inside and outside the development areas.
Will the right hon. Gentleman say how he will look after those industries, such as shipbuilding, which have entered into long-term contracts on the basis of this 7s. 6d. additional payment per head, and which now will suddenly find these firm price contracts perhaps turned into losses for them?
Will the right hon. Gentleman say what saving will be made next year, and also whether there is to be an excess over the cost. If so, whether he intends to pass any excess to his right hon. Friend the Secretary of State for Social Services


for teeth and spectacles?—[Interruption.] Perhaps, as last time, the right hon. Gentleman does not know the financial figures involved.
Does the right hon. Gentleman agree that the grey areas which are not scheduled as intermediate areas will now be even worse off than they have been in the past?—[Hon. Members: "Too long."] I hope that the right hon. Gentleman is taking note of these questions.
Finally, did the Government consider, as Professor Brown in his minority report suggested, cutting the investment grant to those capital-intensive projects which are disproportionate in their yield of new jobs?

Mr. Shore: I shall try, without taking too much time, to answer the more serious points put by the right hon. Gentleman.
First, I note what the right hon. Gentleman said about the removal of S.E.P. Obviously, I also considered the alternative possibility of making savings by other means, including the suggestion made by Professor Brown, but the conclusion to which I came was that, taking into account all the circumstances, the right thing to do was to remove the additional selective employment payment of 7s. 6d. a week. The total saving to be derived from this is £25 million a year.
Second, the right hon. Gentleman asked whether firms which may have entered into contracts on the basis of S.E.P. will be inconvenienced. I should be very surprised if firms have entered into commitments on the basis of a premium which we have never guaranteed on a long-term continuing basis. This is utterly different from the R.E.P., which we pledged ourselves to continue for seven years, and which will not be affected by this announcement.

Several Hon. Members: rose—

Mr. Speaker: Order. I remind the House that there is important business ahead, which I must protect.

Mr. Roy Hughes: I congratulate my right hon. Friend on his statement, which will bring considerable benefits to my constituency of Newport. Will my right hon. Friend now give further consideration

to the idea of bringing the whole of South-East Wales into a development area to enable it the better to meet the challenge of Severnside?

Mr. Shore: I am grateful to my hon. Friend for his remarks, though I think that he is looking somewhat further ahead in thinking of the development of Severn-side. I am satisfied that the establishment of an intermediate area will be of considerable help to South-East Wales, and certainly to his own area of Newport.

Mr. Fletcher-Cooke: Is the right hon. Gentleman aware that the decision to give a 75 per cent. grant for clearing derelict areas will be most welcome in that part of my constituency which is included in his statement? Will he consider including the other half of my constituency, because it is equally derelict?

Mr. Shore: I am glad to have this opportunity of acquainting the hon. and learned Gentleman with the facts. He clearly has not understood either my first statement, or my statement this afternoon, and, given the amount of tittering that was going on on the benches opposite, that is perhaps hardly surprising.
The real point is that the 75 per cent. dereliction grant is available throughout the North-West, the Yorkshire and Humberside regions, and, further, to parts of North Staffs. That is the situation. It is also available in the intermediate areas. If a part of the hon. and learned Gentleman's constituency is within a new intermediate area, and another part of it is outside, both will qualify for the dereliction grant.

Mr. H. Boardman: I understand that South Lancashire is excluded from the list. How can my right hon. Friend possibly justify the exclusion of an area like Leigh, Atherton and Tyldesley, where pithead gear and textile mills are falling like nine-pins?

Mr. Shore: I must make it clear to my hon. Friend that the South Lancashire area is eligible for the dereliction grant. It is available through the whole of the North West. I am fully aware of the great problems of dereliction there, and I believe that what I have said will be of great assistance to the area.

Mr. Geoffrey Lloyd: To reduce damaging uncertainty, will the right hon. Gentleman carry out the recommendation


in paragraph 484 of the Hunt Committee Report, that the widest possible publicity should be given to the considerations determining I.D.C. control in individual areas, with subsequent alterations?

Mr. Shore: I think that the right hon. Gentleman has a point, and I can inform him that my right hon. Friend the President of the Board of Trade is discussing this matter with the C.B.I.

Mr. Sheldon: While warmly congratulating my right hon. Friend on ending the anomaly of the 7s. 6d. S.E.T. payment, may I ask him to consider whether what we really need to do about the large amounts of money that we spend in the development areas is not to have this blanket, indiscriminate approach, but to try selectively to improve those areas which can be selective, and which can be proved to be valuable in their own case?
Can my right hon. Friend say how much he is spending on extra training, because this is a matter on which money can be spent most valuably?

Mr. Shore: If my hon. Friend puts down a Question about the exact amount of money that we are spending on training, I shall be able to give him the answer.
To take my hon. Friend's main point, I accept that as soon as possible we should attempt to make a serious appraisal of the particular impact of the measures which we have introduced, a number of them quite recently, to help development areas.

Mr. Richard Wainwright: Can the right hon. Gentleman say at what intervals of time these finely-drawn boundaries will be reviewed? Does the right hon. Gentleman agree that, for the very people that he has decided to help within the areas he has announced, attractive work opportunities are likely to be available outside the areas he has delineated, without excessive travel to work? Will the right hon. Gentleman consider extending the boundaries accordingly?

Mr. Shore: I have announced the boundaries following discussions and consultations with the E.P.C.s, but I take the view on intermediate areas, and, indeed, on regional policy generally, that they should be kept under review. The basic

reason for this is that circumstances change in different parts of the country, and I think that the Government should have the possibility of responding to those changes by having a flexible policy to adopt.

Dr. John Dunwoody: But would not my right hon. Friend agree that the economic and employment position in many of these development areas is far worse than in the intermediate areas? Therefore, does he not consider that it is illogical and rather disturbing that the entire cost of the aid to intermediate areas is to come from the development areas of today?

Mr. Shore: I regret that we have had to find this money for the intermediate areas from the assistance that we are now giving to the development areas, but I should like to put this into context. I remind my hon. Friend that as recently as 1966–67 the total sum spent on aid to industry in development areas was £56 million. Last year, 1968–69, it was in excess of £260 million. I think that the cut must be seen against that background of a really massive increase in development area expenditure.

Mr. Wood: Am I right in thinking that one effect of the right hon. Gentleman's proposals will be to squeeze an area of relatively high unemployment between two areas with low unemployment which will qualify for assistance? If that is correct, what plans has he for helping these inter-intermediate areas with higher unemployment?

Mr. Shore: There are always difficulties in drawing the frontiers of any area eligible for assistance. I am aware that there are one or two towns which are somewhat disadvantaged by the existing borders, but I cannot at present give the hon. Member any prospect of a solution. I will keep a watch on the problem, and at a later date I may find it possible to be helpful—but not now.

Mr. McNamara: Is my right hon. Friend aware that his statement will be very welcome in North Humberside, and particularly in the city and county of Kingston upon Hull? Can he say what will be the effect of his new proposals on the small shipbuilding industry of Humberside?
Secondly, will he now give every encouragement to firms in the area to expand in the intermediate area and not follow the alignment of the development areas?

Mr. Shore: Encouragement will obviously be given to firms both outside the intermediate areas and already within them as a result of the new forms of assistance that we are proposing. I have no doubt that the response will develop. I cannot give him any special assurance with regard to the situation in the Humberside shipbuilding industry.

Sir Frank Pearson: I welcome the fact that the more critical areas of North-East Lancashire are included within the limited scheme, but can the Minister say when we are likely to receive the report of the committee which is surveying potential industrial sites? When can he give a timetable for the construction of the Calder Valley Road?

Mr. Shore: I understand that a feasibility study is at present taking place on the Calder Valley Road. Advice to the Government on favourable sites will be tendered by the regional economic planning councils.

Mr. John Mendelson: Since my right hon. Friend made his first announcement there has been a general welcome in the areas concerned for the policy that he is proposing, but is he aware that hon. Members representing those areas and neighbouring areas have also received a larger number of letters making further suggestions both as to the areas concerned and to the policy? He has announced that there will be a debate on the Bill, but is it not essential that there should be a debate before the Bill is introduced, so that hon. Members and the House can bring their knowledge to the Government, so that when they draft the Bill information will have been given to them by hon. Members? Will he arrange for a day to be set aside for a full debate on this matter before legislation is introduced?

Mr. Shore: My hon. Friend will realise that it is not for me to decide the question of a debate, but I personally would welcome the opportunity of debating regional policy.

Mr. Younger: Is the Minister aware that in Scotland the financial effect of

the change amounts to nothing less than daylight robbery? Has he noticed an Answer given yesterday, in which the Government admitted that Scotland is £48 million net worse off because of S.E.T.? Now there will be a further £10 million removed in respect of S.E.P. Could not we at least have Edinburgh included as one of these areas, if that is what Scotland has to pay?

Mr. Shore: I remind the hon. Member that in 1964–65 Scotland was receiving £15 million in assistance to industry in the Scottish development area, and that last year the sum was over £90 million.

Mr. Mapp: Is the Minister aware that the list of areas that he has published is highly discriminatory and that there is as yet little hard evidence for his selection? Will he undertake to ensure that in respect of each of the employment exchanges mentioned in his statement and in the appendices to the Hunt Report such information will be given to justify each exchange so that comparisons can be made with other areas which many of us know to have even higher unemployment figures than is the case in his selected areas?

Mr. Shore: I will consider my hon. Friend's request. I do not know whether I can precisely relate the factors put forward as criteria for the selection of intermediate areas with those put forward in the Hunt Report. I shall need to consider the matter carefully.

Sir Harmar Nicholls: How does the Minister's statement referring to the granting of industrial development certificates affect the priority given to areas developing under the new town procedures? They are going through a lot of difficulties, problems and expense, and if this extension means that they will lose the small priority they have their development will not be successful.

Mr. Shore: I am aware of the point. When I made my first statement I said that the Government undertook to keep a close watch on this and to keep the development of new towns and overspills in phase with the growth of industry in those new towns and overspills.

Mr. Robert Howarth: Is my right hon. Friend aware of the problems of the older textile towns in South Lancashire,


whose difficulties will now be compounded by the proximity of the boundaries of the new intermediate areas? How can he justify the exclusion of towns such as Bolton while including towns such as Blackburn?

Mr. Shore: Towns in South Lancashire, such as Bolton and Oldham, certainly have their problems, but they are not of the same degree of severity, measured by the criteria I put forward—the unemployment and loss of population criteria—as is the case in the North-East Lancashire sub-region which we are including as an intermediate area.

Mr. Stainton: May I put to the Minister a special plea on behalf of East Anglia, where the wage and earnings rates are demonstrably very low? An essential part of the Hunt Committee Report implied the expansion of Ipswich as a growth point and this proposal was cancelled by the Government last Friday.

Mr. Shore: I am certain that Ipswich will continue to grow. All the signs are that it has that capacity. As for East Anglia, it is, of all the regions in the country, the one that can expect the greatest amount of investment in new towns and overspill towns, with the supporting public investment to make this possible.

Mr. Gardner: Is my right hon. Friend aware that despite the obvious difficulties of the right hon. Member for Leeds, North-East (Sir K. Joseph) the decisions taken in relation to the Nottingham-Derby coalfield will be very welcome? Can he confirm that when he talks about labour exchange areas he means that the areas are irrespective of local authority boundaries?

Mr. Shore: Yes. It is the employment exchange areas whose boundaries we have taken in defining the intermediate areas.

Mr. Michael Heseltine: Is the right hon. Gentleman aware that the deplorable decision to exclude the Tavistock employment exchange will be widely resented in South Devon as a result of today's statement? Is he further aware he has excluded the equivalent of 8 per cent. of the total number of unemployed in South Devon from intermediate development

area status, and has ignored the advice of every elected authority in South-West Devon?

Mr. Shore: I regret that I am unable to include all the areas which have a claim, but the whole purpose of the intermediate area policy, and the development area policy, is not to deny that certain areas have claims; it is to establish priorities. In this case not only the Hunt Committee and the Regional Economic Planning Council, but also the D.E.A. have all come to the conclusion that this area should not be included. Against that we have the hon. Member's own judgment, with all that goes with it, and I think that on this occasion it might just be the case that he is wrong and we are right.

Mr. Michael Heseltine: On a point of order. Is it in order for a Minister deliberately to misquote the evidence of the Hunt Committee in replying to an hon. Member on a matter of this sort?

Mr. Speaker: Order. We are becoming very sensitive about points of order.

Mr. Anderson: It is good news that the Government have rejected the Hunt Committee recommendations for South-East Wales and have recognised the special problems of towns like Cwmbran and Abergavenny, but can my right hon. Friend given me one good reason why the Chepstow and Monmouth unemployment exchange areas, which have the same unemployment level and suffer from the same problems as other areas, have been excluded?

Mr. Shore: We looked very carefully at the claims of these areas, and this one did not meet the same criteria of need that we had established, and which other areas met.

Several Hon. Members: rose—

Mr. Speaker: Order. I must protect the business of the House.

Following is the list:

EMPLOYMENT EXCHANGE AREAS TO BE INCLUDED IN THE INTERMEDIATE AREAS

North East Lancashire: Accrington, Bacup, Blackburn, Burnley, Colne, Darwen, Great Harwood, Haslingden, Nelson, Padiham, Rawtenstall; and also Barnoldswick* and Todmorden*.

Yorkshire Coalfield: Askern, Barnsley, Castleford, Dinnington, Doncaster, Goldthorpe, Hemsworth, Hoyland, Knottingley, Maltby, Mexborough, Normanton, Pontefract, Rotherham, Royston, South Kirby, Thorne, Wakefield, Womwell; and also Worksopt—x2020;.

North Humberside: Beverley, Goole, Hessle, Hull.

Notts/Derby Coalfield: Alfreton, Heanor, Sutton-in-Ashfield.

South East Wales: Abergavenny‡, Barry, Cardiff, Cwmbran, Llantwit Major, Newport and Newport Docks, Penarth.

Plymouth: Devonport, Gunnislake, Plymouth, Plympton, Saltash.

Leith: Leith.

* In the West Riding of Yorkshire.

† In Nottinghamshire.

‡ Excluding that part which is in the development area.

BUSINESS OF THE HOUSE (SUPPLY)

Ordered,
That this day Business other than the Business of Supply may be taken before Ten o'clock.—[Mr. Peart.]

COUNCIL TENANTS' CHARTER

4.0 p.m.

Mr. Robert Edwards: I beg to move,
That leave be given to bring in a Bill to establish a charter of rights for council tenants.

Mr. Speaker: Order. I hope that hon. Members leaving the Chamber will do so quietly.

Mr. Edwards: Far be it for me, Mr. Speaker, unduly to take time from the debate which is to follow, but I have a duty to perform on behalf of thousands of my constituents and, I believe, hundreds of thousands of the 4 million council house tenants who are interested in participating more actively and wholeheartedly in local affairs.
My Bill had its genesis in my constituency where following the reform of local government throughout the West Midlands, 12 local authorities were taken over by five new county boroughs. Prior to that reform, there were in my constituency two urban councils and one borough council. These three councils have now been taken over by four county boroughs—talk of the Isle of Man: my constituency is in four county boroughs now, and it seems that I need four legs.
As a result of local government reform, the control of affairs by our local authorities has, in my view, become more and more remote. This is particularly true of the huge council estates which blanket the country. Many new problems are arising for those 4 million council house tenants which are not being adequately dealt with, and many hundreds of thousands of these tenants are yearning for an opportunity to participate in their own affairs and to have some control over their environment.
The purpose of the Bill is to create new machinery to make this participation possible. As I say, there are already 4 million council house tenants and their numbers are being added to each year by a further 200,000. We have no machinery at present to deal with their problems and with the new proposals for the establishment of regional government the problem of remote control and the absence of public accountability will become more and more acute.
I therefore propose, first, to establish a small rent tribunal made up of four people nominated by the Minister, with an independent chairman. The purpose of the tribunal would not be the same as that of the rent tribunals. It would not have power to fix rents or to guarantee tenure. It would merely be a kind of forum in which council house tenants and ratepayers could consider every proposed increase in council rents. The local council would come before the tribunal, it would open its books, and it would try to justify the increase which it was proposing.
Only last Saturday I talked with a constituent, aged 73, who has lived in a council house for 40 years. He has made that council house his castle. He has spent his spare time making it a place fit for him to bring up his children. His rent started at 8s. 6d., and it is now £3 8s. By payment of rent, he has bought every stick and brick of that house, and he does not know why he should be faced with such a high rent.
There may be valid reasons for increased rent, but people are entitled to know the reasons and to challenge these assessments. The tribunal, having heard the evidence, would report to the Minister, who would make the final decision.
The other piece of new machinery which I propose is that, in every county borough area, there should be established a small advisory committee made up of council tenants, ratepayers, home owners and political and social organisations, to deal with the many problems that are affecting our large estates. It would be just an advisory council. It would not interfere with the statutory legal rights of any local authority. It would carry on a continuous dialogue with the housing committee in dealing with the problems of the large council estates.
The large council estates have many problems. There is the problem of maintenance and repair. Many of our great council estates are degenerating into new slums. They are neglected because of lack of personal control by the local council over the affairs of the tenants.

There are problems of schools, lack of telephones, lack of playing fields and other amenities. There is the question of air pollution, and of noise and dust from local factories.
Problems such as these are turning the lives of tenants in many housing estates into a nightmare. Unless something is done about it, and tenants are brought into active participation in the control of these estates in a democratic way, there will be increasing trouble. Already there is a rising tide of discontent sweeping through the council house estates. This is clearly manifested by the development of tenants' associations and ratepayers' associations. The democratic machinery of local government is not adequate to deal with the new problems which are affecting our people.
Local authorities under Conservative control have been selling council houses in many of these huge estates, and this creates new problems, too. It means that we have privileged tenants next door to underprivileged tenants. The new owner of a council house has power to build a garage and to change the appearance or structure of his house, while the person next door has no such privileges. This is creating unnecessary conflicts.
I hope that I may be given leave to bring in my modest Bill today so that we may, in Committee, discuss the important problems that are arising out of the large-scale changes in local government.

Question put and agreed to.

Bill ordered to be brought in by Mr. Robert Edwards, Mr. Roy Roebuck, Mr. Edward Milne, Mr. Leslie Huckfield, Mr. John Horner, Mr. Peter Archer, Mr. Stan Newens, Mr. Geoffrey Rhodes, Mr. Eric S. Heffer, Mr. Alfred Morris, and Mr. Laurence Pavitt.

COUNCIL TENANTS' CHARTER

Bill to establish a charter of rights for council tenants, presented accordingly, and read the First time; to be read a Second time upon Friday and to be printed. [Bill 183.]

Orders of the Day — SUPPLY

[23RD ALLOTTED DAY],—considered.

ADJOURNMENT

Motion made, and Question proposed, That this House do now adjourn.—[The Prime Minister.]

Orders of the Day — INTERNATIONAL MONETARY FUND (LETTER OF INTENT)

4.10 p.m.

The Chancellor of the Exchequer (Mr. Roy Jenkins): I gather than the Opposition propose to divide the House tonight. I read in my newspapers yesterday that they intend to do so not so much because of what the Letter of Intent contains as because of what they believe lies behind it.
Tories allege secret pacts
a Financial Times headline said, and lower in the column this was amplified in the following terms:
The Conservative line is that the 'Shadow Cabinet' suspects that the Letter of Intent has been backed by verbal undertakings more stringent than appear in the letter itself.
In other words, disappointed that the Letter is not more helpful to them, they try to erect a bogeyman behind it.
I can dispose of that straight away. There is no secret pact. There are no "more stringent verbal undertakings". Indeed, there are no verbal undertakings of any sort. With the exception of the estimated quarterly path, the position about which I explained to the House on Monday, there is no intention, undertaking or commitment that has not been published. I hope, therefore, that we will hear no more of these totally unsubstantiated charges.
I wish to deal for a short time with some rather more technical points. First, I should, perhaps, explain briefly the nature of the refinancing exercise which is the purpose of this I.M.F. credit. In May, 1965, we drew from the fund 1,400 million dollars. Under the schedule agreed with the fund we must repay that—or, in the technical phrase, repurchase sterling to that extent—by instalments of roughly quarterly intervals between August, 1968, and May, 1970. Under the

fund rules the final repayment must be made within five years; that is, by May, 1970.
We have already repurchased 600 million dollars of this 1,400 million dollars. We have another 800 million dollars to repay. The 1,000 million dollars of the new standby, if it is assumed that we draw the full amount, will refinance part, but only part, of the total repayment of the 1965 drawing of 1,400 million dollars.
I will put this in the context of our total indebtedness to the fund, which will be reduced, not increased, when these transactions are complete. In June, 1968, we drew 1,400 million dollars from the fund. Previous drawings outstanding were then 1,400 million dollars drawn in 1965 and 122 million dollars which was a special drawing in 1966 in connection with the quota increase that year. Thus, in June, 1968, the total of outstanding drawings was 2,922 million dollars.
In May, 1970, assuming that we draw the whole 1,000 million dollars under the new standby, we will have reduced our total indebtedness to the fund by 400 million dollars. In March of this year we also repaid the 122 million dollars drawn in 1966. However, I do not score that as a reduction in our total indebtedness because it was roughly offset by the quarterly repayments of charges made to the fund during the period under discussion.
These charges, which have some of the nature of interest payments, are calculated on a complex formula. They are paid in sterling, but they will at some stage need to be repurchased for foreign currency; so that they can be regarded as a potential foreign currency debt.
Apart from the 122 million dollars which I discount, by May, 1970, we will have repaid the whole of the 1965 drawing of 1,400 million dollars, while drawing only 1,000 million dollars at most under the new standby. So we shall have reduced our outstanding debt to the fund by 400 million dollars. If, later, we should find it unnecessary to draw the whole of the present standby, our reduction in debt to the fund will be that much greater.
I come to the phasing arrangements, under which we draw half the standby now and the rest becomes available in


quarterly instalments. In our previous agreements with the fund we had the right to draw the full amount immediately. Why not now? Part of the answer is technical. Under the fund's rules, members cannot normally draw beyond the point where the fund's holdings of their own currencies exceed 200 per cent. of quota. The fund's holdings of sterling are now some 650 million dollars below that limit, so there could be no question of an immediate drawing of the full amount of the standby.
The other reason is that it is now normal fund policy to phase the right to draw under standby agreements, and this is particularly true were large sums are involved. Thus, in this phasing we are simply following the normal rules and practice of the fund.
I turn to the concept of domestic credit expansion and I will comment on its meaning and the way in which it is likely to operate. This was described in detail, though rather technically, in a Treasury article in the May issue of Economic Trends, and I laid a great deal of stress in my Budget speech on the importance of restraining the expansion of domestic credit in this sense.
It might be helpful, however, if I endeavour to explain, as clearly as I can, exactly what is involved in this somewhat complicated concept. The shortest, but not necessarily the most illuminating, description is that domestic credit expansion—or D.C.E. as it is known—is the net addition to the borrowing of the public and private sectors taken together.
At somewhat greater length and looked at from the borrowing end, D.C.E. can be described as the sum of, first, the public sector borrowing requirement; secondly, the net purchases of public sector debt—gilt-edged, broadly speaking—from the private sector, excluding the banks; and, thirdly, private sector borrowing from the banks.
The first of these items—that is, public sector borrowing requirement—will, as I said in my Budget speech, be substantially negative this year. As a result of fiscal and expenditure decisions already announced, the public sector is expected to be in financial surplus to the extent of more than £300 million, a swing round of more than £600 million from last year.
The total public sector borrowing requirement is somewhat different from the central Government borrowing requirement, where our surplus will be still greater. I mention this lest there by any confusion between the two. The public sector as a whole will represent a net repayer of debt to the extent of over £300 million, a swing round from last year of over £600 million.
There is inevitably less certainty of prediction about the second item—that is, sales of public sector debt to the public or purchases from the public—but it is a firm object of policy and market management that it should be a negative item or at least as small a positive one as possible.
There is, therefore, scope, within the limits I propose to set on domestic credit expansion, for an increase in the third item, which is private sector borrowing from the banks. Thus, let there be no nonsense about the private sector taking the brunt. The reverse is, in fact, the case.
Last year, borrowing by the private sector went up by nearly £700 million. The public sector's borrowing requirement and net purchases of public sector debt put the total domestic credit expansion to £1,225 million. But because of the dramatic swing round in the public sector's position, it would be quite possible for bank borrowing by the private sector—not all of which is within the ceiling; there are certain exempt categories—to rise by not significantly less than last year without carrying us over the limit that I have set on domestic credit expansion. Indeed, I do not expect bank borrowing by the private sector to increase by quite as much as this. However, that is a forecast of the result of policies already in force and not a threat of further action. The question of further action would arise only if there were clear signs that the economy was not following the course set for it. At present, therefore, it does not arise.
I turn now to the difference between domestic credit expansion and the money supply. This relates to the external position. The direct effect of an outflow of foreign exchange, whether because of a balance of payments deficit or for other reasons, is to reduce the money supply. Thus, an apparently satisfactory rate of


increase in money supply may reflect an adverse external position. It is, I think, clear common sense to have a credit indicator which is not made to look better the worse we do abroad or worse the better we do abroad.
D.C.E. avoids this paradox, and that is the essential difference between it and the money supply as commonly defined. As a monetary indicator, it has this clear advantage, I think, over money supply, but it is not, of course, the only indicator, and we shall consider it in conjunction with other indicators of economic developments and guides to policy.
I must now say something about the £300 million balance of payments surplus which I have given in my letter as the objective for the present financial year. On present performance, I believe this target to be realistic and attainable. The outlook for world trade this year now looks more buoyant than it did at the start of the year. As expected, imports into the United States have flattened out after their exceptionally rapid rise last year, though this is, doubtless, partly due to the United States dock strike, but this has been largely offset by a strong rise in imports by other markets, especially Germany, France and Canada.
As a result, there is now a good chance that 1969 will be a year of above average growth in world trade. This is the background against which we can look for a further strong surge in our exports. Admittedly, the progress in the opening months of this year was disappointing, though less so when allowance is made for the effects of the United States dock strike and for the decline in deliveries of ships and aircraft, the timing of which is almost inevitably erratic.
But, during the first four months of this year, new net export orders in the wider engineering field were 23 per cent. higher, on a seasonally adjusted basis, than the average for the last three months of 1968. This steep rise implies a strong growth of exports in the second half of this year and into 1970. Imports, on the other hand, have almost levelled out. Indeed, in volume terms they have been declining slightly during recent months. With the tight rein on home demand, I would not expect the volume to rise significantly over the next 12 months, despite the expected growth of industrial activity.
If, as seems probable, the rise in import prices which have slightly pushed up the import bill in the part of this year which has gone by now ceased, the underlying trend of visible trade should become strongly favourable. This improvement in the visible trade account should be accompanied by a continued rise in our invisible earnings. During the first quarter of this year, these earnings rose to £140 million, £47 million a month, which is an all-time record.
It is reasonable, in the light of these excellent results, as they most certainly are, to look for an improvement of £100 million or more in the contribution from invisibles this year over last year. This, together with the improvement at which we aim in the trade account, would produce a substantial surplus on current account, sufficient, I believe, to cover any likely deficit on capital account—and by a margin of £300 million. Let us remember that, during the last financial year, contrary to the impression which is often widespread, this capital account deficit was quite negligible—only £7 million—throughout the four quarters beginning 1st April, 1968.
The picture which I have been painting is before taking credit for the recently revealed under-recording of exports. In addition to these reasonably encouraging prospects, there is a more general point. The Government have begun a series of measures over the past year or so designed to achieve the required turn-round in our economy. The earlier measures were mainly fiscal. Without effective monetary measures, there was a danger of these being partially frustrated. This, I believe, we have now avoided and, as a result, the whole series of measures are having increasingly beneficial effects on the shape of the economy and the balance of payments.
Finally, in this context, there is the recently discovered under-recording of exports. In one sense, this will make easier the attainment of a surplus of £300 million in the current financial year, but, as I have often said, there is no magic about particular figures. The under-recording does not affect our reserves or financing problems, which are the reason for the standby. While the early attainment of a £300 million surplus is made easier, it makes it all the more necessary to look beyond that figure


to the larger continuing surplus which is our further aim.

Mr. Reginald Maudling: Surely the movement of these figures from the balancing item to the recorded exports does not affect the balance of payments at all, does it?

Mr. Jenkins: Yes, it does. The right hon. Gentleman has fallen into an error into which some others have fallen. The balancing item stands outside the balance of payments, as conventionally defined, as conventionally recorded. Therefore, the movement, the change, affects—[Interruption.] The right hon. Member for Leeds. North-East (Sir K. Joseph) is right, and I will come to that.
The change obviously affects the visible trade account, it affects the current account, it affects the balance of payments, as conventionally defined. What it does not affect is the balance of monetary movements, what it does not affect is the total of our reserves or the total of our debt. I hope that that is clear to the right hon. Gentleman.
I have now tried to explain to the House the main points involved in the Letter of Intent, and, indeed, the objective and policies to which it refers. I have, I think, shown that the policies set out in the letter are identical with those which I announced in my Budget speech, which were themselves totally consistent with the strategy which I tried to follow for the previous year or 18 months, but I realise, of course, that there are some people who are not much reassured by this and simply think that our present strategy is wrong. These critics, or some of them, argue that we are, as they put it, "obsessed" with the balance of payments and that our determination to achieve a surplus and pay our debts will frustrate growth, cause an unacceptable degree of unemployment and lead to a falling off in investment.
If it were true, this would be an unattractive outlook. What we clearly want is a balance of payments surplus combined with good growth at home. To fail to get either is, of course, a Chancellor's nightmare and he can never fully insure against all risks. But is such an unfavourable combination in all the circumstances at all likely? I do not

believe that it is. Fears of a recession are considerably exaggerated—

Mr. James Dickens: By the Bank of England?

Mr. Jenkins: I have never known my hon. Friend previously to believe everything that was said by the Bank of England.
The signs are, I believe, at least becoming apparent that, externally, the economy is responding in the way we want. The balance of payments on current account has improved markedly from a deficit of £270 million in the first half of 1968 to £150 million in the second half and to only £20 million in the first quarter of this year. Taking the under-recording of exports into account, we were almost certainly just in surplus on current account on the first five months of 1969, from 1st January to 31st May.
This is not to say that the monthly trade figures are by any means yet satisfactory, or not still liable to sudden short-term deterioration. We saw that in February, March and April and we could have disappointing months in future, even though the trend is now favourable. We also saw in those early spring months a temporary plateau in growth of exports, but, as I have explained, exports have now begun to grow again and all the indications point strongly to a continued growth over the rest of the year.
This encouraging swing round in our trading position has not been gained at the expense of a low level of demand and production at home. As I forecast at the time of the Budget, there has been the expected temporary pause in the growth of output. But there are signs that the pause was neither very marked nor very lasting. In view of some gloom engendered by the C.B.I. survey for June, I should point out that this showed that 50 per cent. of the firms responding had increased their output over the previous four months, while only 14 per cent. had experienced a decline. Looking ahead over the next four months, four times as many expect an increase in output as expect a decline. I share their optimism and expect that output will now expand more markedly, led by exports and investment.

Mr. Frank Hooley: Does my right hon. Friend agree that


one of the most favourable indications at the moment is the all-time record of output by the steel industry? Is this not a good barometer?

Mr. Jenkins: I agree that that is a favourable factor which could be added to the points I have mentioned and some which I propose to mention during the next few minutes.
Fears have been expressed about the level of unemployment. It is certainly the case that there may have been some easing of demand in the labour market since earlier this year. But, again, this is not very evident in the replies to the June C.B.I. survey. No fewer than 31 per cent. of all responding firms—and 46 per cent. of those in the capital goods industries—expected skilled labour shortages to limit their output during the next four months.
It is also true that there has been a rise in the seasonally adjusted unemployment figure since February. But there was a similar increase in each of the last two years, and in each case there was a subsequent fall—a sharp one—between August or September and the following February. It would, therefore, be quite wrong to project forward the movement of recent months. It is necessary to take a broader look.
Since last November, unemployment has in every month been lower than it was a year previously. And this month, total unemployment has fallen below the 500,000 level for the first time in 23 months. Unfilled vacancies are higher than at any time since September, 1966.
But I recognise that some people think that whatever the unemployment position may be now, there is a danger of trouble later in the year. In some circles—paradoxically enough, those normally calling for greater restraint of home demand—fears have been expressed that the present tight monetary policy will have a serious effect on investment. I do not think that there is much evidence to substantiate this.
The fall in recorded manufacturing investment in the first quarter can, I believe, be explained by the ending of the higher rate of investment grant in December which brought forward expenditure from the first quarter of 1969 in to the fourth quarter of 1968; in other words, the fourth quarter figure should be scaled

down and that for the first quarter scaled up. When this is done it can be seen that the upward trend in manufacturing investment, which began around the middle of last year, has continued.
The latest Board of Trade investment intentions survey carried out in May showed that downward revisions compared with those reported last November and December were offset to a very large extent by upward revisions by other companies. In my Budget assessment I had already scaled down these earlier expectations to take account of the November, 1968, measures, of the Budget itself, and of our tighter monetary policy. I might also mention that investment plans of firms in the distributive and service industries have not been scaled down since last November, while shipping investment plans have been revised upwards.
The latest C.B.I. survey is consistent with this general picture. It shows some decline in investment plans since February. But in the crucial capital goods sector, investment intentions have become still more buoyant. This sector is crucial both to the future of our exports and the future structure of our industry at home. And, in general, the buoyancy of investment intentions is at a historically high level.
Other indications confirm the prospect of a good growth in investment. For example, home orders received by the engineering industries have been at a high level. And I.D.C. approvals in the 12 months to last March were 50 per cent. above the level in the last year of the previous administration.
With all this evidence before us it is surely premature—to say the least—to be gloomy about the prospects for investment. What, in my view, has been happening is quite different. For years people have been acting on the assumption that a relatively high rate of inflation was here to stay. They are now not quite so sure—a very encouraging development—but a marked slackening in inflation is not the same thing as a recession—unless, of course, there are some who want to talk us into a state where investment will fall.
I expect a good increase in private investment during the year ahead broadly in line with that forecast at the


time of the Budget. The measures I have taken in the monetary and fiscal fields may restrain a little the growth of investment and, as I explained earlier, I have allowed for some such restraint, but it will still leave a good level of growth. Restraint is necessary if we are to take full advantage of the export orders that are flooding in, particularly in the engineering industries, and be able to deliver on time. In the latest C.B.I. survey, 36 per cent. of the firms in mechanical engineering and 45 per cent. of the firms in electrical engineering thought that delivery dates would limit their ability to obtain export orders.
There is bound to be some conflict between the need for the earliest possible improvement in the balance of trade and the need for investment to improve our productivity and our balance of trade in the future. It is not easy to strike the exactly correct balance. I shall certainly watch developments carefully, but at present I feel that so far as one can make a judgment the balance is about right. One factor often left out of account is, I believe, certainly the case. If we can get a rapid and substantial improvement in balance of payments this will do more than anything else to give industry the confidence it needs for a sustained programme of investment and modernisation. Equally, if we do not get the balance of payments right this will quickly destroy confidence and bring any investment boom to an end.
To sum up, I see no evidence that we are moving into a recession, or even that we are likely to do so later in the year. Indeed, I think that it is far more likely, as I forecast at the time of the Budget, that demand will pick up again towards the end of 1969 and in the first half of 1970. But even if I am wrong about this—and I readily accept that there can never be any certainty about precisely what the economy will do in the future, or, indeed, even precisely about what it is doing at the present—we are by no means defenceless. It is easy to stimulate demand; the greater difficulty in economic management is the time-lag before measures to dampen down excessive demand take effect.
I therefore remain very strongly of the view that this would be quite the wrong time at which to switch strategy.

I expressed that view in my Budget speech. The developments in the economic situation which have come to light since then make me still more convinced of this than I was 10 weeks ago. There is, of course, nothing in the Letter of Intent which in anyway involves a change of strategy. Quite the reverse. If the I.M.F. did not exist, I would want to pursue the policies contained in the letter. They arise not from the need to borrow, but from the continuing demands of the underlying situation.
In the first debate in which I spoke as Chancellor, on the 1967 Letter of Intent, I said that there was nothing in that letter which would dictate my action. It was the facts of the situation, and not the I.M.F., which would determine the measures I took.

Mr. John Smith: If the policies in the Letter of Intent are not necessary for the borrowing, what are they doing in the letter?

Mr. Jenkins: They set out a policy which I believe it right to pursue. I would have thought it not unreasonable that people from whom we were borrowing should ask what polices we were to pursue, but they are not different policies from those I would pursue if we were not borrowing.
I said in 1967 that it was the facts of the situation and not the I.M.F. which would determine the future course. That certainly proved to be the case. There has certainly been no measure in the past 18 months which I took against my better judgment and because of the I.M.F. The same will be equally true in the future.
Of course, this does not mean that everyone will like the policies we will pursue. But, if so, as I said on Monday, they should blame me and not the I.M.F. What are the alternatives? Some of my hon. Friends have put down a Motion, in fairly familiar terms, giving their recipe for avoiding the inconvenience and difficulty of going for a further improvement in our trading position. I believe that the objective is misconceived—we cannot and should not seek to avoid the need for such a further improvement—and that some of the measures would be likely to be self-defeating. But, at least, there is a certain coherence about this programme. From the Opposition,


I am bound to say, I detect no such coherence.

Mr. John Mendelson: Before my right hon. Friend turns to the Opposition, may I ask him whether it is not a little unfair to the text of the Motion for him to say that its aim is to make us avoid getting a positive balance of payments? Is not the purpose of the Motion that many hon. Members are not prepared to pay the price which we see implied in the economic strategy he has accepted, but that we all want a positive balance of payments?

Mr. Jenkins: I am not sure that that is true. I certainly do not wish to be unfair to my hon. Friend, or the other signatories of the Motion. Two of the points in the Motion are, certainly, first, that we should seek to pay our debts by mobilising overseas assets and, secondly, that we should restrict capital outflow to achieve a balance of payments.
As I have already pointed out, the private capital account was in exact balance during 1968. The total capital account, including a very small official deficit, was in deficit to the extent of only £7 million.

Mr. Dickens: rose—

Mr. Jenkins: I made one misleading slip when I said "1968". I meant in the financial year 1968–69.

Mr. Dickens: Covering the period my right hon. Friend is talking about?

Mr. Jenkins: Covering the period I am talking about.
For the financial year 1968–69, the figures I have given are exactly accurate. The counter-proposals by my hon. Friends are means which I do not think would work and which I do not think would be desirable for achieving our objective of further progress on current account—that is, on the visible trade account accompanied by the invisible account.
However, I was, when I was interrupted, first, by my hon. Friend the Member for Penistone (Mr. John Mendelson) and then by my hon. Friend the Member for Lewisham, West (Mr. Dickens), saying that, although I thought this to be a misguided Motion, and although I did not accept it, I thought that it had some coherence—

Mr. Dickens: T.U.C. policy.

Mr. Jenkins: —but that I found it difficult to detect a similar coherence in the Opposition's attitude.
I shall listen carefully for suggestions in this debate, as I have in previous ones, but I have a feeling that what I shall hear from the right hon. Member for Enfield, West (Mr. Iain Macleod) and others will be—

Mr. Iain Macleod: Wait for it.

Mr. Jenkins: I will wait, certainly; and, if I am wrong, I shall be glad to say that I am wrong—will be as barren as on previous occasions—plenty of criticism about the balance of payments not being better, but no constructive suggestions at all for helping to deal with it.
The Opposition have opposed by their speeches and their votes almost every measure—fiscal, monetary, public expenditure—which we have taken to deal with the balance of payments and without which the very considerable improvement which we have made recently could not have been secured.
What nearly everybody in the country wants is that the balance of payments should be put right without any conceivable inconvenience to themselves. This is understandable, but it is not a recipe for action and it is an impossible task which I could not begin to pretend that I can discharge. All that I believe we can do, are doing and shall continue to do, is to put the balance of payments right, to put it securely right, and to put it right compatibly with a healthy economy at home. That is and will continue to be our policy, with or without a Letter of Intent.

4.46 p.m.

Mr. Iain Macleod: We are very glad to see the Financial Secretary to the Treasury with us. I understand that he will be winding up the debate tonight. We have missed him during the last day or two from the Standing Committee which is considering the Finance Bill. It is very good of him to come here. I know that he has been ill, and we appreciate very much that he has come here today, because he is and has been deeply involved in this matter.
The Chancellor made an extremely serious speech and a routine peroration. I have a feeling that I shall emulate both. I regard this as a most serious debate. I was very glad to have the careful analysis which the Chancellor put before the House, although on a number of points I differ from him.
I will deal in a sentence or two with the question of the vote. We are on the Adjournment, and the House very well understands a vote in those circumstances. We have, as the Chancellor has just said, consistently opposed the economic policies of the Government which have led us, among other things, to the situation which we are discussing today. It would, therefore, be absurd if we did not record our votes tonight.
For myself, apart from saying that, I am concerned to establish, if I can, two propositions. The first is the reality of the Letter of Intent, and I shall carefully document this part of my speech. Secondly, I want to underline what I and many hon. Members on both sides believe to be a momentous and potentially dangerous course on which the Chancellor is now determined to steer.
Perhaps I can take one point by way of a preliminary. The Chancellor said on Monday that four Letters of Intent had been signed by Conservative Chancellors but none had been published, and he claimed some virtue from the fact that this Letter of Intent has been published, as was his predecessor's at the time of devaluation.
This argument is extremely thin. We have not been told, for example, the true extent of central bank borrowing, although that was invariably revealed under the Tory Government, as it was invariably published in the Bank of England Quarterly Bulletin; nor have we had Letters of Intent before the devaluation one in 1967, which was signed by the present Home Secretary; nor, for example, have we been told, although the Financial Secretary was pressed on this, the arrangements for recycling which were made only a short time ago.
The truth of the matter—the Chancellor knows it very well—is that when he came into office he simply could not wait to publish his predecessor's Letter of Intent so as to slip that part of the blame to him. He never thought that, with the

advantages of devaluation he would have to go back to the International Monetary Fund, and he has been hoist with his own petard. That is the simple explanation.
In my brief comment on Monday, I said that the Chancellor had capitulated to the International Monetary Fund, and the right hon. Gentleman seemed mildly to resent what I said; he claimed that there had been no change since the Budget. My comment would have been equally apt with regard to the Budget, and I propose to come back to that in a few minutes.
Let us be clear—I agree wholly with the Chancellor in this—there is no question of what is popularly called a banker's ramp here. I do not for a moment suggest that there is another and secret agreement beyond the one put before the House, though I shall suggest that a certain amount of cosmetic surgery has been applied to this one, and I shall suggest, and prove, I think, that it is regarded very differently in the I.M.F. from the anodyne way in which it has been presented from the Treasury Bench today.
There is nothing remarkable in the fact that, when one is deep in debt, the ordinary consequences follow and the bankers are entitled to take a close interest in one's affairs. What is happening—this is one of the few of his remarks which have come true—is what the Prime Minister outlined on 3rd October, 1964:
Let me be clear about this. You cannot go, cap in hand, to the central bankers of Europe as they have now been forced to do and maintain your freedom of action, whether on policies maintaining full employment in Britain or even on social policies. The central bankers will, before long, be demanding that Britain puts her house in order …
That is exactly what has happened.
On the question whether there has been commitment or capitulation to the view of I.M.F., there is a great deal of evidence one could quote. I take, for example, The Times of 9th April:
I.M.F. will be watching for control of money supply in Budget".
On 17th April:
Chancellor on the road to Chicago".
Again, in The Times of 18th May, in a letter from a distinguished Socialist economist, Roger Opie:
We have become the Chile of Western Europe. Our economic policy is entirely in the hands of the I.M.F."—


which drew an excellent and urbane response from the Chilean ambassador, of which I shall read part:
The result of the economic policy which we have followed—to a certain extent on the advice of the I.M.F.—has been that our reserves of gold and convertible currencies are the highest in our history; we have repaid all our drawings from the I.M.F., and at present we are not using the stand-by available from that Fund, nor other stand-bys offered to us by many European bankers; and the rate of growth of the Chilean economy during the past years has reached 8 per cent. per annum.
Happy Chile.
The quotation which comes most closely to my own anxieties I take from the hon. Member for Ashton-under-Lyne (Mr. Sheldon), in a very good debate, which the Chancellor will have read, which we had in the Finance Bill Standing Committee on 11th June. The hon. Gentleman speaks with great authority on these matters, and this is what he said about money supply:
We are here going into unknown territory, and what makes many of us very anxious has been the greater and greater commitment week after week, or month after month, by the Chancellor to this policy. We saw the first stage early last year, when there was doubt and possibly even scepticism. We then saw conversion. We then saw the support for the monetary theory. We then saw support for the theory of money supply—then enthusiasm, and now massive commitment."—[OFFICIAL REPORT, Standing Committee F, 11th June, 1969; c. 26.]
I do not mind whether the Chancellor prefers—perhaps it is a fairer word—his hon. Friend's point about massive commitment to my word capitulation. Indeed, I withdraw "capitulation" and I accept what his hon. Friend said. But what I am concerned to prove—I think that many hon. Members on both sides will wish to take up the point—is how important a turning point this particular conversion of the Chancellor is, whatever caused it, and what it means.
I come now to some aspects of the Letter of Intent—I accept that there is no other secret document—in order to show that the points in the Letter of Intent are not really the Chancellor's but are put forward by the I.M.F. This has been known for many weeks, partly because this Government are as leaky as a sieve and partly because Washington and the economic Press corps there are extremely well informed and it is a good listening post.
The Chancellor said that he intended to draw only 500 million dollars, and he gave some technical reasons. I take the true reason from the Sunday Times of 27th April, almost two months ago:
Jenkins is hoping to get a standby limit of about $1,000 million. But only $500 million of this will be available from the start. Anything above that will depend on Britain fulfilling her quarterly payments of $200 million each, which extend to May 1970.
So it was known in Washington many weeks ago—the precise amount which he would be allowed to draw, and the fact that every subsequent drawing would be supervised by the I.M.F.
When one of his hon. Friends mentioned on Monday the question of trigger clauses, the right hon. Gentleman was noticeably unhappy. The fact is that trigger clauses are there in the Letter of Intent. They are carefully disguised, they are even fudged, but they are there all right. There is to be an inspection every time, after this 500 million dollars, before a further drawing is permitted.
Then we have the new idea of a £300 million balance of payments surplus in the financial year. The Chancellor of the Exchequer has abandoned several targets and he has slipped conveniently from the calendar year to the financial year. But I accept this target. What I cannot accept is that it is wholly his own idea.
On 14th May, a considerable time before the Letter of Intent was signed—I take this from Peter Jay's article from Washington—
The I.M.F. has resigned itself to the United Kingdom probably never achieving the £500 million balance of payments surplus which was the much quoted official target after devaluation. But it still insists in the letter of intent on something of the order of £300 million on current and long-term capital account …
So it was known many weeks ago, but now we have the pretence that this is the Government's own idea put to the House. In fact, the House of Commons, as usual, is the very last to hear about these matters.
How was it done? It was done, as I said, as an exercise in cosmetic surgery, with great skill, by the Financial Secretary to the Treasury. I take some of my information on this from various papers. The first point that I seek to establish is that this Letter of Intent is not regarded in the same way in Washington as it is in Westminster. We know that


the Financial Secretary arrived on what was called an unannounced but not a secret visit, which, I suppose, means that he did not wear a beard.
I take a quotation of great importance from the United States editor of the Financial Times on 13th May. Talking about the visit of the Financial Secretary and the results it brought, he said:
One version of this compromise, which seems likely to be reliable, is that the link between the need for consultations and the rate of growth of domestic credit has been fudged so that the 'trigger' is no longer visible.
In return, the British side has agreed to even more frequent consultations with the Fund than would be normal (probably before each drawing)"—
and that has happened—
and the net result is believed in Washington to be that, while the conditions imposed by the Fund remain unprecedentedly severe, they are now more presentable for Parliament.
Thus the real nature of Mr. Lever's mission was to find a form of cosmetics that would hide the true face of the agreement reached between Britain and the Fund. Even so, however, the officials of the Fund ('we have our rules you know') are certain that the face underneath is the same as it ever was.
And so am I. The article in The Times this morning makes this clear once more.
Because this question is of such enormous importance I make one final quotation on this point, from the Economist of 17th May. It said:
Mr. Lever was sent to Washington last weekend to plead that the trigger clause for Britain be disguised, so that when Britain's letter of intent to the I.M.F. is eventually published an effort can be made to tell Labour backbenchers that it means nothing at all, while an assurance will be broadcast to the outside word that of course Britain will live up to all its promises and obligations. As so often in the history of this Government's doubletalk, the danger is that foreigners will then take note of what the Government says to its backbenchers, and the backbenchers will take note of what the Government announces to foreigners.
That is the position. As I said, I undertook carefully to document step by step what I have put before the House. It gives a very different picture of the Letter of Intent from the one the Chancellor put before the House.
The hon. Member for Lewisham, West (Mr. Dickens) said in his intervention of Monday that he thought few people would be deceived by the soporific and utterly misleading sentences of the Letter

of Intent. I wish that I thought he was right. But I do not. I think that overwhelmingly the Parliamentary Labour Party will be lulled, and want to be lulled, by the Letter of Intent that has been put before it. I have only one word to say, not wholly seriously, about the error in our export accounting which has been discovered. I have no quarrel with the explanation the Chancellor gave, and I am very glad to hear it. I cannot resist, however, commenting on his speech on Saturday and the way in which he presented this most convenient error.
It is, as the right hon. Gentleman explained, wedge-shaped. It started in 1963, Tory Ministers can be blamed for that, which is very convenient. Because it is wedge-shaped it does not have very much effect on 1964, and, therefore, one can go on talking, although with less conviction than usual, about the deficit in 1964. It takes a long time, said the Chancellor, to build up, and that ditches the Home Secretary nicely. Finally, it is to be counted at its full value in the past 18 months, which is the period that the right hon. Gentleman has been Chancellor of the Exchequer. For the Chancellor, happiness is wedge-shaped.
We have a parliamentary phrase, "the main Question". I want to say a word on the question whether—and I am talking particularly in terms of rates—we should stay broadly as we are or go for a dramatic new development, of which the obvious ones are first, import control, and, second, some form of floating, crawling or gliding rate. The important thing to notice for the purpose of this debate is that import control has been ruled out by the I.M.F., and is so ruled out in the Letter of Intent. I could document that in exactly the same way from articles from Washington some time ago. So, the Chancellor rules out import control, or it was ruled out for him, whichever way the House likes to look at it, and he himself ruled out on Monday all variants of the rate.
As the Chancellor and his predecessor will acknowledge, I have been—I think rightly for somebody even in a shadow position—very reluctant to discuss these matters. Perhaps that is wrong. I propose only to say a brief word about them now. For many reasons I am fiercely opposed to import controls. I find the arguments for a fixed rate much more


attractive than those against apart from the fact that to float would be a unilateral abandonment of many of our undertakings. The wider band idea is perhaps the worst of all worlds, because if there is pressure on a currency it would either slip or rise to the appropriate point of the band, low or high, and then one would have all the disadvantages of a fixed rate without any of the possible advantages.
I am not quite so dogmatic about the other proposals, but I think that it is dangerous for anybody who has, or even may have, a major responsibility for the economy of the country to close all the options all the time. Otherwise, as we saw with the Prime Minister last week, one can run into a position in which one must either bulldoze one's way through or run away. I do not think that the Chancellor was wise to be quite as firm as he was.

Mr. John Mendelson: rose—

Mr. Macleod: I will give way to the hon. Gentleman in a minute, but I would like to finish this point, because the Chancellor has said that on things of this sort he does not hear what one thinks should be done, and I would like to tell him.
I would like to make two suggestions. First, I very much agree with the managing director of the International Monetary Fund and with my right hon. Friend the Member for Barnet (Mr. Maudling) who, in a recent speech, said, in effect, that the founding fathers of Bretton Woods never meant us to be as dogmatic, almost as religious, as we have become about exchange rates, and that it would be vastly better if we were prepared to move gently at appropriate stages instead of waiting till forces overwhelmed us. I think that that is the right view.
Second, there is a great deal to be said for another sort of Bretton Woods conference some time. I know the arguments against it. They mainly centre around the difficulties of preparing an agenda, because of the dangers of speculation. I would say that there are many items, including perhaps the question of the position of gold, which should be discussed and decided by the major interests before the agenda was made public. With that one proviso, I think that there is much to be said for going

back to the work of the "Founding Fathers" and seeing what in it was good and what should, in more modern circumstances, be rejected.

Mr. John Mendelson: The right hon. Gentleman has charged my right hon. Friend the Chancellor of the Exchequer with so arranging events that he can claim freedom to pursue his economic strategy while accepting the conditions of the I.M.F. The right hon. Gentleman has just outlined his own position condemning alternative proposals and has given us the picture of a man who is capable of doing exactly the same. He would fall in with the demands of the International Monetary Fund and claim them as his own. Why does not he give the House the benefit of his thinking on the real alternative policies that he would be pursuing if he were in office?

Mr. Macleod: I have just finished on what I have called the "main question", putting forward two points which I believe are the right policy. The hon. Gentleman has made that intervention many times to me and there are matters to which I will refer later. But for the moment we are debating the Letter of Intent.
How serious is the position? The Chancellor was a bit "bullish" today and I hope that he is right. I will be delighted if he is. But for some time, as he knows, I have taken a more "bearish" attitude and events, any way so far, have supported that point of view. I must put it to the Chancellor that many Members on both sides of the House believe that the position is more serious than Treasury Ministers do. I can best illustrate this by quoting from a short debate that we had upstairs in Committee on the Finance Bill on 16th June.
We were talking about investment. My hon. Friend the Member for Worthing (Mr. Higgins), my hon. Friend the Member for Acton (Mr. Kenneth Baker), the hon. Member for Lewisham, West, my hon. Friend the Member for Walsall, South (Sir H. d'Avigdor-Goldsmid) and the hon. Member for Ashton-under-Lyne all intervened, in effect, to draw the attention of the Chief Secretary to the Treasury to what had been said in the Bank of England Quarterly Bulletin and in all the leading newspapers that deal with financial matters, and they raised many other points points as well.
My hon. Friend the Member for Acton asked whether the Chief Secretary read the same sort of newspapers as he did, because the view the right hon. Gentleman was putting before the Committee was so greatly different. Talking about investment, the Chief Secretary said:
The latest figure was somewhat less than a 15 per cent. increase. It was an increase of more like 11 per cent., and that figure still applies."—[OFFICIAL REPORT, Standing Committee F, 16th June, 1969; c. 206.]
That was on 16th June.
Next day, the main headline in The Times Business News was:
Manufacturers trim back forecasts of capital spending.
The article went on:
The Board of Trade said last night that in real terms the increase in capital expenditure may be held at 7 to 8 per cent. …".
It commented:
After adjustment for seasonal factors, and at 1963 prices, this was at its lowest level for nearly four years.
That was the next morning after the right hon. Gentleman has put his views to the Committee and had been, I will not say rebuffed, but taken up by a number of hon. Members with great knowledge of these matters.
It is fascinating how closely the goddess Nemesis observes and reverses almost any pronouncement by the Treasury and, indeed, all Socialist Ministers. It may be that she takes a particular enthusiasm in doing this to her own sex. It was a stone cold racing certainty that, after that triumphant declaration of the right hon. Lady the Secretary of State for Employment and Productivity, that the 11 "loo" ladies were going back, that they would go back and the rest of the factory would come out. It is a very good epitaph to Socialism. One of the lavatories is working, but the factory has stopped.
The Chancellor talked about unemployment figures. As he knows,. I always bring this matter into an economic speech. I want to take up the point he made. It relates to something which the hon. Member for Ebbw Vale (Mr. Michael Foot) said. The Chancellor claimed that the recent June figures were the lowest for 23 months. I find it surprising that the right hon. Gentleman should put a comment, like that before the House and, if I may say so, expect to get away with

it, particularly when he knows that he is to be followed by someone who was Minister of Labour for a considerable number of years. The figure of 23 months is very significant. It is not 24.
The reason is, of course, that normally June is the best month for employment—the lowest for unemployment—in the year. July is more or less the same. There is a drop in most Junes of 50,000. What the Chancellor is really saying is that this is—and it is—the second worst June figure since 1940. The worst was last year—and he has presided over them both. That is the reality. That is slightly different from the announcement that the figures are the lowest for 23 months.
Then—and this surprised me, too, because he and I share a great interest in these figures—the hon. Member for Ebbw Vale got up and said that he was glad to note a reduction of about 20,000 or more in June. But, as I have indicated, the seasonally adjusted increase ought to be of the level of about 50,000. The seasonally adjusted decrease in the June figure is 26,000. That is the worst June since records were first kept. This makes the somewhat complacent attitude of the Chancellor rather difficult to follow. Within the regions themselves, the Northern Region, for example, had 4·7 per cent. unemployment, which is the highest it has had in June for over 20 years.
There is no point in talking now about Paish. He has been dropped astern years ago. The Government would happily settle for the levels of unemployment that he dreamed about. We have gone far beyond them. The position is simply that last month showed the highest leap in June since records were kept. Last month was the second worst June since 1940, the only one going higher being June, 1968, and the trend in 1969 is worse than in 1968.
The forecast of the National Institute is that unemployment may rise to about 630,000 by the end of 1969 and then go on rising at an average rate of perhaps 4,000 a month. It may be that that is too depressing a forecast and I hope very much that the Chancellor's "bullish" analysis will come true. But it is a formidable case and no one in the House must be in any doubt of that.
I turn now to industrial production. The April figures, which were only published a day or so ago, show that there was a clear downturn in activity. It may be that they indicate a plateau but at best it is a plateau of stagnation in industrial output. The steel figures have been quoted and to complete the picture I want to quote a letter which has come to the—I am ready to give it to the Chancellor—from the person with more authority than anyone else in the machine tool industry, and we know that that is probably the best of all illustrations.
The letter says:
Although the machine tool figures for April were encouraging and although orders in the first ten days of May were also encouraging, the second two-thirds of the month showed a decline, so that the total orders for May, both home and export, were below the level of April. Furthermore, the level of orders for June is at best running below the level of orders for May.
That seems to be extremely serious.
The reason that we are turning to money supply is the failures of more orthodox remedies which were particularly evident in the Budget of last year and in the mini-Budget of the autumn. Of course, I, too, have read the Tribune Motion. I am, as Tribune supporters know, wholly opposed to their remedies and, frankly, I could not care whether or how they vote tonight. But I share some of the anxiety which I know will come into this debate about the unknown territory into which we are venturing.
There is some danger in putting the country's economy largely at the mercy of a thesis that is unproved in practice, however formidably supported in theory, and I therefore turn to the subject of the money supply itself.
The simplest way in which to show quite what has happened and how fast it has happened in recent years is to read one sentence from the Radcliffe Report of 1959:
Monetary measures can help, but that is all.
That was the conventional wisdom of 1959 and in 1969 we have an utter commitment to this same theory.
Let nobody have any doubt that this is the most important economic debate and argument since the days of Lord Keynes in the 'thirties—I am not talking about this debate today, although it may

well help, but about the arguments which centre on the money supply. It is the most important debate which we have known for a long time.
The reason is that the traditional methods of taxation are breaking down. In his Budget statement, the Chancellor said that it would be dangerous to tax tobacco and spirits further because of the law of diminishing returns and that he did not want to tax beer because of the effect on price. But these items add up to nearly half, more than 40 per cent., of indirect taxation. If he says that he cannot move on that front and to that is added the contention, which few would deny, that direct taxation is pushing against the roof, one must look around for another alternative—this I take to be the argument of the Chancellor.
Last year, he took £1,200 million out of the economy. If I understand completely the new doctrine of D.C.E., the same amount, more or less, was pushed back into the economy and, therefore, the exercise was partly or wholly nullified.
I quote from an essay read by the President of the Statistical Society last week. He said:
Despite therefore increases of £923 million in taxes in the 1968 Budget and a further £250 million in the November mini-Budget, the increase in consumption which occurred was precisely the same as that expected before either of those measures was taken. I would not quarrel with the Chancellor's conclusion that this was 'a considerable and unusual achievement'.
And so it was.
Using very rough figures, the size of the problem is that money supply at the end of 1968 totalled £16,000 million, of which £3,000 million was currency and £13,000 million bank deposits in one form or another. The important point, which will not add to the enthusiasm of hon. Members opposite, is that both elements are controlled directly by central bankers and not directly by Governments. That the currency is so controlled is obvious and that the deposits are so controlled depends on the management by the authorities of Government securities.
As I understand, the central doctrine of the money supply is that a rise or fall in money supply leads, after about six months, to a rise or fall in money G.N.P., which I take to mean the rate of inflation plus the rate of growth. The normal


concept of the money supply advocates is that one should allow money supply to increase roughly at the rate of growth planned for the economy, plus one. In other words, if a 4 per cent. growth rate is planned, the money supply could increase by about 5 per cent.
But if, as I have reason to believe, the increase in the first quarter of this year was 2 per cent. in the money supply, there is something very nasty in the woodshed for autumn added to all the other things that are to happen in the autumn. It was put clearly by the hon. Member for Stoke-on-Trent, Central (Mr. Cant), who is a great authority on these matters—and I very much hope that I shall be able to hear him speak in this debate—when he spoke on the debate on 16th June which I have already mentioned.
The hon. Gentleman said:
Will the hon. Gentleman ask the Chief Secretary whether the Economist is right in believing that a reduction in money supply—£355 million in the first quarter, seasonally adjusted—is the same as a 2 per cent. increase in the money supply? As this is the figure which Professor Friedman advised the Americans to use, was this also suggested to the Chancellor by the International Monetary Fund?"—[OFFICIAL REPORT, Standing Committee F; 16th June, 1969, c. 199.]
That was an interesting question and, like the hon. Gentleman, I should dearly like to know the answer.
Money supply doctrines, the Chancellor will agree, are not by any means necessarily deflationary. Indeed, they can be a very quick route, where necessary, towards expansion, but that is not how the Chancellor sees them at present. In any case, there is no easy way out of our problems by the use of money supply doctrines. The S.E.T. was thought by some people to be a painless method of deflation. It is to go up again on 9th July and almost certainly will have an adverse effect upon employment.
I have dealt with these matters at some length partly because I genuinely believe that this is a matter of the highest importance. I have two points which I put to the Chancellor. First, will he consider whether it would be wise for the authorities, as is done in America, to publish more frequently the terms of reference by which they are guided when they buy and sell Government securities? As he will know, this information is given at frequent intervals in the United States

and, if it is to be an important, if not decisive, factor in the handling of our economy, it would be as well to know what sort of riding instructions have been given to the authorities.
Secondly—and in a sense I return to the Tribune Motion—I could not urge the Chancellor that this is the right moment for him to change course, as he put it. He has embarked on this proposal—

Mr. John Mendelson: The right hon. Gentleman is on the rocky road; he always agrees with the Chancellor.

Mr. Macleod: Perhaps.
I have made it clear, by my analysis of the unemployment figures and the figures of production of machine tools and investments, that I think that a number of danger lights are flashing. I do not think that there is any case for a more stringent squeeze which seems to be implied in the Letter of Intent. I am merely saying that I see no particular case for that.
There is one last point I want to take up on the Letter of Intent which perhaps the Chancellor can deal with, or leave to the Financial Secretary. It is the question of the date. It is a little odd, or so it seems, that this letter is dated 22nd May. A great deal has happened since 22nd May, including the abandonment by the Government of their policies to legislate in this Session about which the Chancellor was quite blunt in his Budget statement when he said:
The Government have, therefore, decided to implement without delay, during the present Session, some of the more important provisions incorporated in the White Paper 'In Place of Strife'. My right hon. Friend the First Secretary will be intervening later in this debate to explain the provisions which the new legislation will embody."—[OFFICIAL REPORT, 15th April. 1969; Vol. 781, c. 1006.]
The simple question is whether, in any of the earlier drafts which we would dearly like to see—the Chancellor is keen on revealing all in these matters—there was any reference, and it would be odd if there was not, to prices and incomes and legislation to be abandoned thereunder. Was there anything about the one thing which the I.M.F. above all wanted to hear, that action was to be taken to deal with industrial relations? I hope that the Financial Secretary will deal with this. I accept that the Letter was signed on 22nd May, but has anything been deleted from it before it was presented to the


House, and, if not, what sort of discussions took place in those very interesting weeks on what was to happen to industrial relations and related legislation?
We are debating the Letter of Intent and I am trying to show, as I undertook, documenting my speech as I went along, that this is not a Letter of Intent. The Chancellor was merely allowed to hold the pen. This is a charade but what is one more charade among so many? This is one more humiliation that is dressed up as a compromise—[HON. MEMBERS: "Oh."] The Socialist Party increasingly lives in a dream world in which all that matters are cosy ovations in the Parliamentary Labour Party, all that matters is not the reality of what is happening to our economy but what can be sold to the Labour Party.
We have gone, cap in hand, to the central bankers and, as a result, there are not enough rods, poles or perches to accommodate all the chickens that are coming home to roost. The real world, as distinct from the world dominated by what can be sold to the Labour Party, is a world of an intolerable burden of debt, much of which has not been revealed, of borrowing to repay borrowing and of leaving the settlement to the successors of the present Government, of limitations on our economic sovereignty, of record and climbing levels of unemployment, of industrial production at near-stagnation levels.
Of course, we will move, sometime, into a surplus—the surplus that was a normal occurrence during nine out of the 13 Conservative years. It was as normal for us to be in surplus as it is for Socialist Governments to be in deficit. It is an economic miracle, however we look at it, that with everything that has been done to savage our economy at home we are not already in true surplus. The answer is quite clear. This, as with the previous crises since November, 1964, is basically a crisis of confidence, and confidence will not return until this discredited and disreputable Government get out.

Mr. Deputy Speaker (Mr. Sydney Irving): Order. I make a very strong plea to hon. and right hon. Gentlemen to keep their speeches as short as possible in view of the very large number of Members who wish to take part in the debate.

5.35 p.m.

Mr. Austen Albu: We have listened to what has been one of the most amiable and witty speeches that we have had for a long time from the right hon. Member for Enfield, West (Mr. Iain Macleod). He gave us the peroration he promised but as it was discounted in advance we need not take it very seriously. What we must all agree upon is that nothing he said was other than history. It may not be true history, no one knows, but it contains, as far as most of us could hear, not a single alternative proposal to the policies of my right hon. Friend. I will come to the questions of monetary policy, on which he spent some time, and on which I think he got slightly confused. That is not surprising because most of us do when dealing with this. No one can take any pleasure in a situation when our country is forced continually to borrow from the I.M.F. or the central bankers. The situation is certaintly not one which gives pleasure to my right hon. Friends on the Front Bench.
Although the right hon. Gentleman made no proposals for changes in policy there are some who make radical proposals. I believe that they do a great disservice to the intelligent discussion of economic policy when they put forward their proposals as universal panaceas. There is no universal panacea for our economic situation.
Many, if not most economists, are becoming much more modest in the advocacy with which they put forward their own theories, no doubt because in the past 20 years they have had a good deal of experience, not only in this country but overseas, of advising governments on what they should do. But there are still some economists, I regret to say, of whom it can be said that the degree of heat with which they put forward their proposals is almost in inverse ratio to the reliability of their theories.
It is true, as the right hon. Gentleman hinted at the end of his speech, that the factors making for economic growth are not all economic. They are largely psychological and social and, therefore, in making economic policy it is probably better, in spite of what may have been said in the past, to rely more on the experience of those who have had to deal with the maintenance of the economy


than on new academic ideas. I therefore also hope that the new ideas of monetary policy will be applied with caution.
It is a difficult concept to understand and it generally means different things to different people, but we all recognise the symptoms in interest rates of over 10 per cent. Having said that, I must say that it would have been extremely silly to continue with a credit policy which counteracted all the other measures being taken to maintain a reasonably steady level in the economy. As I understand it, there is no need to give the new policy fancy names, it is merely a method of correcting errors which have taken place in the past, arising from the expansion of credit taking place as a result of the way the credit machinery was manipulated by the authorities.
We have understood for many years that what we are suffering from is a longstanding decline in our economy. When the right hon. Gentleman refers to the number of surpluses on our balance of payments during the years when the Conservatives were in office he forgets that the deficits occurred with increasing severity over their last 10 years, and were getting worse and worse so that they inevitably landed us in the situation which we found ourselves in in 1964 and which we have been trying to get out of ever since.
The long-standing structural causes of our inadequate economic behaviour include the behaviour of management and unions. On the behaviour of unions, our overall record on industrial conflict is no worse, and probably is rather better than, that of most of our competitors. But it may take a form and happen in industries where the effects are particularly harmful. Now that the trade unions have accepted responsibility for dealing with these matters—and I am not sure that they would not have been wiser to have left some of the job to the Government—the country will expect them to deliver the goods. On the other hand, the bellicose noises of the C.B.I. do nothing to help to improve our system of industrial relations. It would be better employed in directing its attention to the inadequacies of management in this field and in others.
The structural problem was well illustrated by a recent American study which

purported to show that as our national income rises the demand for imports rises twice as fast as the demand for our exports. But we must not forget that our imports are not high compared with those of our competitors. In 1965, as a percentage of our gross national product, United Kingdom imports were 14·1. In Western Germany the figure was 15·3 and in Sweden 21·3. In 1966, the figures were 13·8, 14·9 and 20·6. Last year it was higher in this country—16·7—due no doubt to higher prices as a result of devaluation. But the level of imports is bound to fall as devaluation takes effect. We must therefore continue to look to the inadequacies of our exports for the main cause of our difficulties.
Even if one is sceptical about these mathematical exercises, especially after the revelations of the statistical mistakes of the Board of Trade—

Sir Gerald Nabarro: Is the hon. Gentleman recommending that his own Front Bench should discard a very important part of their policy which has dictated in the last 18 months, though entirely unsuccessfully, that import substitution should close part of the gap?

Mr. Albu: I have said nothing of the sort. All that I said was that on the whole the situation will not be corrected unless our exports expand faster.
We have some practical experience of the structural difficulties. The recent Report of the N.E.D.C. on the chemical plant industry indicated that there is an increasing inadequacy in the supply of chemical plant in this country and inadequate exports largely due to the shortage or unsuitability of the components manufactured in this country. The right hon. Member for Enfield, West referred to machine tool exports. I understand that export sales of machine tools are going up fast. But we come up against another shortage which was recently reported in the Press, namely, a shortage of electric motors. This is most extraordinary when one thinks how relatively simple they are to make. They are not a very sophisticated product and I should have thought that their manufacture could have been rapidly expanded.
As the Chancellor of the Exchequer said, there has been the usual shortage of


skilled labour for the engineering industries on which our exports and investment depend. I quote these facts and figures because they are the answer to those who believe that import controls or a floating rate would help us to expand our economy faster. The truth is that it is not only demand but capacity which restricts economic growth. We have not the capacity to expand as quickly as we would like. I know that my hon. Friend the Member for Lewisham, West (Mr. Dickens) will say that if we had import controls and if we did not have to determine the rate of expansion by our balance of payments we could have more rapid expansion at home; our economy would grow to a much higher level and we would be better off. But the simple fact is that that is not true. Expansion behind import controls would mostly take place in the consumer goods industries, which would leave us far worse off in world markets than before. The really successful exporting countries, particularly Western Germany, have been successful because the greater proportion of their exports are engineering goods. That is why I am not worried about reports of a reduction in capital investment in the consumer goods industries, because it is on the capital goods industries that our exports and home investment most depend. It is the trend of the expansion in the capital goods industries which provides us with most hope.
I hope—and perhaps the Financial Secretary will refer to this point—that we are still keeping close control of overseas investment. I should like to know whether the rules on overseas investment which the Bank of England has been operating since 1965, are still operating, including the one that such investment should be recoverable in two or three years. I should like to see something done about overseas portfolio investment, particularly in Australia, but I realise that there are very serious difficulties about this and I do not think that our Australian friends would allow us to do anything about it. Let us put it bluntly and frankly and not pretend that it is possible when it is not.
There is always a tendency, which is encouraged by academic economists, to believe that a dramatic change of policy can hasten the process of economic expansion.

The right hon. Member for Enfield, West has taken a very different attitude today from the attitude which he has taken in the past, or even at the time of the Budget. I thought that at the time of the Budget the Opposition were creating a rod for their own backs should they by any chance ever get back to office and have the responsibility of managing the economy. Whatever they may have said in small print, they have given the impression that they could expand the economy much more rapidly, reduce taxation and cut public expenditure at the same time.
There is a very serious danger in Oppositions making claims of this sort. It may be that the right hon. Member for Enfield, West has begun to realise this. The danger is that of further public disillusion, which, as I have said in the House before, could lead to a nasty public mood. Waiting in the wings, if this should occur, is the right hon. Member for Wolverhampton, South-West (Mr. Powell). In the House the right hon. Gentleman follows, with all his well known dialectical skill, his logical arguments, from doubtful premises as a rule, to inevitable conclusion. In economic matters he claims that because knowledge is imperfect therefore anarchy should reign—which is not a very good prescription for government.
But it is not the right hon. Gentleman's speeches in the House which deserve attention so much as the speeches which he makes, in true populist fashion, when he appeals from Parliament to the people. We know that he does this on racial matters, on which he has never spoken in the House and on which he makes very populist appeals outside. But it is less noticed that he makes the same appeals on economic matters. On two or three occasions recently he has made attacks, in violently emotive language, on international bankers and financial institutions. He is not alone in wishing to see our country strong and independent, but the style of his speeches outside the House is calculated to arouse the instinct, not of patriotism, but of xenophobic nationalism.
Moreover, the right hon. Gentleman strikes a sympathetic chord in the ears of extremes on both sides of politics in this House. He has the hon. Member for


Oswestry (Mr. Biffen) as one of his supporters. He probably has the support of my hon. and learned Friend the Member for Northampton (Mr. Paget) and my hon. Friend the Member for Ebbw Vale (Mr. Michael Foot)—[HON. MEMBERS: "Oh."]—in his attacks on international bankers.

Mr. Dickens: I know that my hon. Friend wishes to be fair in these matters, but, in the absence of my hon. Friend the Member for Ebbw Vale, I ask him to withdraw that most unkind and ungenerous remark.

Mr. Albu: I merely said that in his attacks on international bankers the right hon. Member for Wolverhampton, South-West probably has the support of my hon. and learned Friend the Member for Northampton and my hon. Friend the Member for Ebbw Vale. That is all I meant, and nothing more. Outside the House he makes appeals to groups of people as wide apart as the various sorts of Communists and the National Front. What emerges after all the headline-creating rhetoric of his speeches, for it is always this populist appeal which gets headlines? On the last occasion, it was a floating exchange rate—that radical change supported by such Establishment figures as the noble Lord, Lord Butler, who apparently failed to get it introduced when he was Chancellor of the Exchequer, and the right hon. Member for Barnet (Mr. Maudling), who has supported it on many occasions, and that super-Establishment journal, the Economist.
Of course there is a case for a floating rate, although I believe that its unilateral introduction by this country at this time would be disastrous. Certainly I agree with the right hon. Member for Enfield, West—there can be nobody in the House who does not agree with him—that the present arrangements are completely uncivilised and that it is certainly time, by one means or another—perhaps by a conference—I do not know—that we arrive at a situation where we could make exchange rate adjustments without all the fuss and bother which takes place at the present time.
But, of course, the right hon. Gentleman the Member for Wolverhampton, South-West does not use those speeches

and arguments in order to enlighten public opinion on these extremely difficult and complex matters. He treats the argument as a demagogue, appealing to ignorant passions from which he hopes to benefit as demagogues before him have benefited when people have tired of the weary struggle of bringing our economy up to date.
Unlike the right hon. Gentleman I believe that there has been a substantial advance in international financial co-operation. If obviously needed changes are not made it is not the bankers who are at fault, it is the politicians. They are the ones who are responsible. For instance, the resistance to a change in the value of the Deutsche mark was not by the bankers in Germany, but by the politicians, by the political leaders. One has only to look at the attitude to these matters of ex-President de Gaulle, in France. I do not know who it was prevented Lord Butler—Mr. Butler as he then was—from making a change to a floating rate in 1955. I do not suppose it was the bankers. The decision was obviously taken by his political colleagues.
Finally, I repeat that I do not believe that dramatic changes are needed at this moment in Government policy. I agree with my right hon. Friend that the signs are there that the effort that the Government have been making to improve the performance of British industry are having their effect. The Letter of Intent is certainly the result of past errors over many years, but I believe it does nothing to alter the policy which the Government have been pursuing since the decision to devalue the £. That policy was not to deflate nor to reduce the overall level of demand but to create conditions in which a higher proportion of our output went on exports and a lower one on imports, and, of course, a lower one, also on home consumption. It is true that the policy has taken rather longer to have effect than we expected, but it would be idiotic, in my opinion, to make a major change now when all the signs are that it is at last beginning to work.

5.53 p.m.

Mr. Julian Amery: The right hon. Gentleman the Member for Edmonton—

Sir G. Nabarro: He is not right hon. but hon.

Mr. Amery: He ought to be right hon., he knows so much about these things.

Sir G. Nabarro: I agree he ought to be: he quarrels with his bosses.

Mr. Amery: The hon. Gentleman the Member for Edmonton (Mr. Albu) made some interesting criticisms of the views of my right hon. Friend the Member for Wolverhampton South-West (Mr. Powell). I do not agree with either of them, so I will leave it to the two of them to discuss that matter further between them.
What struck me about the hon. Gentleman's speech was the way he accepted the Chancellor of the Exchequer's speech. I suppose that, having lived in this Parliament since its beginning, he has become inured to the gradual transmorgrification of Government policy which has taken place. I am in a slightly different situation. No man can lose his virginity twice; and I feel a little bit like Rip Van Winkle in the fairy story, coming back after three years "out of doors". The Chamber looks much the same; I find many familiar faces here; and yet the whole tone of our discussions is so completely different from what I heard when I last sat in the House that I have been left speechless over these last few weeks—until today.
We have had the Budget; we had the statement on teeth and spectacles; we have had arguments about industrial relations; we have had the statement on increased contributions; and now we have the Letter of Intent, which fastens upon the country deflation, not as a temporary remedy, but as long-term policy. I say to myself, "What has happened? How is this possible? How is it that right hon. Gentlemen, disciples of Lord Keynes, have become converted by Professor Friedman? How is it that the friends of Professor Kaldor and Professor Balogh are now the spokesmen not just of some gnomes but of the Central Gnomes? What has happened? How has this come about?"
I peer across the Chamber; I see the right hon. Gentleman who followed me at the Ministry of Aviation and who has risen, over piles of cancellations, to greater heights; there he is—the Labour Chancellor. The hands are the hands of the Labour Chancellor—though not so horny-handed—but the voice is the voice

of Mr. Schweitzer. How has all this come about?
To understand we have to look back a little. Mr. Aneurin Bevan, with whom I disagreed, but for whom I have a profound respect, once said that "the religion of Socialism is expressed in the language of priorities", and I would claim that, from the beginning, this Administration have got their priorities wrong. They started with the laudable objective of improving social conditions, of introducing important reforms, but they did so without first making sure whether the producers of the country—the workers by hand and brain, the wage earners, the managers, the inventors, and the investors—were earning the money to pay for them. They put the cart before the horse. The right hon. Gentleman the Prime Minister admitted this in that remarkable interview on the B.B.C. when he bared his soul and said that he had lost the confidence of world finance because they thought he was putting social reform ahead of economic recovery, and that he had not been able to catch up with that difficulty ever since.
What did they do? They entered upon obligations for which they could not pay, and so they went to Washington and they got some money. The conditions of the first loan were set out in what I think was called the "Brown Paper". I do not want to dwell too much on that; I was connected closely with a number of the projects involved; but it called for the cancellation of so-called prestige projects. What they were doing was mortgaging our future—eating the seed corn of our country. I do not expect the right hon. Gentleman to stand up and pay tribute to me for making sure there was no break clause in the Concorde agreement, but I am grateful that at least he has been a member of an Administration which authorised a postage stamp to commemorate the first flight of what I think will be a big money spinner. I think there are many people in this House today who will agree with me when I say that if we had gone on with the TSR2 and the P1154 we should be earning foreign exchange instead of spending it on American aircraft, as we are still doing, and we should have been better off. When the first loan was spent the Government found themselves unable to meet their fresh obligations. What did they do? They devalued. They repudiated


their obligations—which is what devaluation means.
I have noticed a curious tendency—I dare say other hon. and right hon. Members have noticed it—for the Prime Minister and other Ministers to speak of devaluation as if it had been a calculated policy. "Devaluation was not quite as successful as we planned," they say. They did not plan devaluation. It was forced upon them. The £ was simply swept over the edge. There have been deliberate devaluations. General de Gaulle, I think, had one in 1958. But this one was forced upon the Government. They had no option but to accept it and to negotiate the best percentage that they could get.
Along with devaluation went the rather curious decision to try to save money by withdrawing from east of Suez. This is not the occasion to debate the Government's defence policy, but the money saved, at any rate in the short-term, was very small. Indeed, it was offset by the cost of sanctions against Rhodesia and the ban on the supply of arms to South Africa. But it has been a severe shock to world confidence that Britain is no longer to play her part east of Suez. What is more important, the last trade returns which the right hon. Gentleman presented to us have emphasised the importance to our balance of payments not only of our trade east of Suez, but of the return on invisible exports and the return on overseas investments, of which those in the Persian Gulf and South-East Asia are not the least.
Devaluation forced upon us the result which anyone could forecast. Our exports gained some advantage and our imports went up in price, and since we have to import much of our food and nearly all our raw materials, the advantage was fairly limited. The gap remained. Since devaluation, and in spite of the standbys then obtained costs have risen, largely as a result of the increased cost of imports, and partly as a result of the failure of the wage freeze so that the advantages of devaluation have been largely eroded. While the disadvantages have remained.
Then we had a change of Chancellor and a change of policy. The new Chancellor embarked upon deflation as a policy. First we had deflation in the private sector—increased taxes upon companies,

increased taxes on individuals, an intensified wage freeze, and an intensified credit squeeze. When that was not enough we had deflation practised on the public sector, on the nationalised industries, and, as we know in our constituencies, on education, housing and on health. Finally, there was the attempt to kick the Labour Party's paymaster in the dentures, which was wisely abandoned as soon as the cash flow was assured.
In our 13 years in office we practised deflation as a temporary measure when the economy was in difficulty. The party opposite has turned the remedy into a religion and made the purgative a diet. We had the deflationary Budget of 1968, the deflationary Budget of the autumn of 1968, the Budget of 1969, the statement of the Secretary of State for Social Services on contributions for National Insurance, which amounts to another deflationary Budget, and now we have the Letter of Intent. It is quite clear that deflation is to be a long-term policy, lasting certainly for two, perhaps for three, possibly for four years, for as long as the Government can hope to stay in power even if they win the next General Election.
The Letter of Intent contains the interesting target of £300 million, to which my right hon. Friend the Member for Enfield, West (Mr. Iain Macleod) referred. I do not think that the right hon Gentleman would have volunteered this figure. I do not think that the Treasury would have volunteered it. The figure has been dictated to the right hon. Gentleman, and the rub is that when the gentlemen from the I.M.F. come over quarterly to look at the books and see how we are getting on they will say to the right hon. Gentleman, "You are not doing well enough. You will not get a £300 million surplus. You are not working towards your target", and they will asked for another turn of the screw. They will demand another pound of flesh. And, as the Letter of Intent excludes import controls and anything of that kind, the extra turn of the screw can only mean more taxation, or more unemployment, and this is the policy to which the right hon. Gentleman has committed us.
At Question time the other day my right hon. Friend the Member for Streatham (Mr. Sandys) was rebuked by


the Chancellor who said that the Conservative Party had never published Letters of Intent when it was in office. There was no need to do so. The right hon. Gentleman now has those Letters on his files. They are very innocent documents.
The right hon. Gentleman the present Home Secretary wrote a letter in dignified terms. They were the terms of a bankrupt nobleman writing to his creditors, but at least he took the high line, and they touched their caps in deference to his previous greatness, at any rate in public. This Letter may not be as bad as the first draft was, but it is clear enough. The right hon. Gentleman has always prided himself in public at least on his egalitarian principles, and I have heard him quoting Rainbarow in the House; all respect to the Leveller, but no respect to the groveller.
In 1931 the Labour Government broke up rather than accept the kind of dictation which is now being accepted by the Government, in spite of their huge majority. The ghosts of Macdonald, Snowden, and Montague Norman are having their way. Instead of reviling Ramsay Macdonald, the party opposite ought to put up a statue to him. The lost Leader has come into his own.
If they support this Motion tonight, they are all on the side of Cobdenite deflation as a policy—the lot of them.
I doubt whether a surplus of £300 million can be achieved, and I have yet to meet a man of experience in the City who thinks that the chances are good. But even if it were achieved, it would be at a fearful cost. It would be at the cost of stunting the growth of British industry for two or three years to come. It would be at the cost of making our development a joke in comparison with that of Germany and Japan. It would he at the cost of maintaining our present burdens, or perhaps even increasing them, from the point of view of taxation and unemployment. It would be at the cost of a cut in our living standards.
There has been a good deal of laughter and criticism in recent years about Mr. Harold Macmillan's statement, "You have never had it so good", but when he said it in 1959 it was true in absolute terms of this country. What is more, with the exception of Sweden, we had the highest standard of living in the whole of Europe. Today, for the first time, our

living standards are not rising any more. What is more, they have fallen behind those of other industrial countries in Europe.
What are the perspectives of the Letter of Intent?—if we succeed in achieving the target, with all the sacrifices involved, we may get another standby on similar terms. If we do not, then what happens? We all know that when there is a takeover bid the take-over company always guarantees the autonomy of the subsidiary. We shall be told that it is all right for the Government to go on, but I expect that the next Letter of Intent will specify that the Chancellor of the Exchequer be chosen by the Fund for the Government, or perhaps those who operate the Fund will submit to the Prime Minister a list of three from whom to choose.
I do not blame the I.M.F. for dictating the kind of terms it has dictated. It is the Fund's money that is at stake and those who operate it are concerned with the flow of international trade. They are much more concerned with the free flow of international trade than with the growth of the British economy, and this is the difference between us. Their interests and ours are not identical.
A long-term policy of deflation cannot suit this country. It may be practised successfully in a fairly closed economy like that of America or France, where imports are a fairly small part of the costs, or in a fairly backward agricultural country, as Dr. Salazar did in Portugal, but it cannot be done here it cannot be done because we have to sell abroad enough to buy the food and raw materials that we need, and we have all the time to keep in the forefront of technology, which means all the time spending more on investment in new machines.
We must learn the lessons of the past in economic affairs as in defence and foreign affairs. Deflation failed in 1931 when it was practised by the Labour Government of the day, and it failed when it was practised by the Coalition Government of the day. It was only when we went off gold and went over to tariffs and preferences at Ottawa that we got off the rocks. Deflation failed in 1951, and only when we had the dash for freedom in 1952 did we get Britain off the rocks again. What is more, this policy of deflation is unnecessary. Britain


as a business is still very strong. Our exports have reached record heights. Our overseas investments have been built up at least to pre-war levels, if not higher, and give a very big return to the economy. We sell abroad and have invested abroad about 70 per cent. of what the Americans have done. Our skills are still comparable with theirs, in spite of the cancellations in advanced technology, for which the right hon. Gentleman bears some responsibility.
We used to manage to finance half the free world's trade through the expertise of the City of London on reserves smaller than those of the Ford Company. Only when the Government put their clumsy paws on this delicate machine did things go wrong.
The only way back to prosperity and growth is by a return to expansion. That is why I am sure that the Leader of the Opposition was right when he said last night that we have to give incentives to companies to invest more and to individuals to show more enterprise or to work more efficiently.
The situation is not the same in 1969 as it was in 1931 or 1951. We shall need new weapons to fight the new problem in front of us. The party opposite does not seem to begin to appreciate the problem. In 1931 a quarter of the industrial capacity of the country was unemployed, and 3 million human beings were unemployed. The problem of expansion was how to bring back the human beings and the capacity back into production.
Our problem today is quite different: there is not much slack to take up. The problem is how to create new capacity and make more efficient use of the labour force that we have today. How to create new capacity? This is a question of more investment. That means lower taxation, easier credit and lower interest rates. But it means more than that. We cannot expect modern enterprise to embark upon the immense expenditure involved in introducing modern automation and machinery unless it is assured in advance that its investment in those modern machines will not be sabotaged by neo-Luddite action on the part of a small irresponsible group of operatives.
The right hon. Lady may be "flushed" with success at the return of the "loo

ladies", but I am not convinced that the T.U.C. can do the job. My right hon. Friend is right when he says that we must apply industrial reforms which will ensure that agreements entered into between unions and managements can be made enforceable at law. He is right to say that this should be an election issue. Where the Prime Minister went wrong was in trying to introduce this in a hole-and-corner fashion—to spring it on public opinion without preparation and to spring it, above all, upon a party which—what shall I say?—is dependent to some extent upon the trade unions themselves.
I agree entirely with my right hon. Friend that sanctions will have to be imposed against what are now called "unconstitutional" strikes, but we have to look a little beyond that. It is not just the anarchy of industrial relations that has produced "unconstitutional" strikes. The Government's deflationary policies have far more to do with it than that. I want to see from my party a more positive approach to the problem.
The time is coming—it ought to come when a Conservative Government is returned—when we shall encourage greater participation by the wage earners and their organisations in the decision-making processes of industry from the shop floor to the board room and at every step. It has been done in Germany with great success. The Germans have had a strangely fortunate experience from their defeat. Their machinery was rebuilt by the Americans, and Mr. Ernest Bevin gave them probably the best trade union system in the world. We have over 300 trade unions; they have about a dozen.
This situation does not make it easy to achieve what I want, but when my party comes forward with its proposals for trade union reforms I should like to see it not only elaborate the sanctions which will be necessary to prevent unconstitutional strikes but also put forward a programme to encourage the mergers of unions and the participation of wage earners in the decision-making processes in industry.
I have talked about the differences between our present situation and that of 1931. No less great are the differences between the present situation and that of 1951. In 1951, when we made our


dash for freedom—with great success—we did so behind the armoury of the import and exchange controls inherited from the war-time Government and the Labour Government. The right hon. Member for Battersea, North (Mr. Jay) may have been right when he warned us that we were premature in sweeping away the last of those controls as we did in 1958–59. But we have to face it, we did.
Now may I give a word of warning to my right hon. Friends on the Opposition Front Bench. The policies to which we are committed will involve some pressure on the balance of payments. We cannot reduce taxation to give greater incentives and we cannot maintain our presence east of Suez without further expenditure and some pressure on the balance of payments. I accept that we can compensate to some extent by cutting or curbing Government expenditure, but all my experience in the years when we were in office leads me to believe that we should be deluding ourselves if we thought that we could altogether compensate by this method.

Mr. John Mendelson: The understatement of the year.

Mr. Amery: I give the hon. Member that. We shall have to work on this problem when hon. Members opposite are in Opposition and we are in power. I want to see the erection of some kind of defences against an exaggerated flow of imports. I regret that the Letter of Intent should have categorically and specifically included a commitment not to adopt any of these.
There are many different ways of proceeding. I am not sure that the import deposit scheme is such a failure as many people think. I am not sure that it has been tried long enough. My right hon. Friend the former Chancellor of the Exchequer, encouraged and advocated it long before this Government took it up. Something could be done about exchange rates. There are proposals for a completely floating rate, which my right hon. Friend the Member for Wolverhampton, South-West (Mr. Powell) advocates. There is the idea of the crawling peg, or the wide band, which a number of distinguished men have called for.
In this age of specialisation it is wiser for politicians to concentrate on the strategy rather than the tactics of policy. My preoccupation is to see unnecessary

imports cut out. I do not want to be doctrinaire about the way in which this should be done; but the disadvantage of monetary weapons is that they are blunt. They put up the cost not only of the imports we do not want but of food and raw materials that we have to have. That is why I have always been more favourably inclined to selective controls.
There are many ways in which these can be imposed. It is time that we took a leaf out of the American book and had a "Buy British" policy on Government account. I hope that we shall never again go buying American aircraft. I cannot understand why Government agencies are still buying American computers and I should like to see a strict inquiry into the nationalised industries and Government Departments to see how much foreign equipment they are importing which could be dispensed with and bought over here.
I see no great difficulty either in applying some kind of import restrictions when we are negotiating with countries outside the G.A.T.T.—for example, the Soviet Union. Why do we persistently allow them a favourable balance of trade in their negotiations with us?
I own at once that, when one is dealing with countries in the G.A.T.T., the problem is more difficult, but our French friends, after the so-called "May revolution" introduced a wholesale system of quotas without having had much retaliation against them, in spite of the complaints. We should not be too frightened of this bugbear of retaliation. Of course, many people would like to do us down; but we also have many friends in the Western world who would be prepared to put up with a good deal of temporary inconvenience if they thought that it would really put our economy on its feet again.
In accordance with our international agreements, any restrictions of this kind would have to be temporary. I accept that. But we all have to accept—indeed, my right hon. Friend the Member for Enfield, West stressed this today—that the international economic system with which we have lived since the end of the war is breaking down. An increase in the price of gold or acceptance of the Special Drawing Rights might keep it going a little longer, but there is a structural error, at any rate from our point of


view, in the concept of bound tariff margins and fixed interest rates combined.
Indeed, it was recognition of this which was a major factor in leading our party to advocate entry into the Common Market; and, for all I know, leading the party opposite to do the same. It was the same considerations which led us at Ottawa in 1932, to try to make a broader trade and payment area with the Commonwealth, which led us after the war to move towards European unity. The political difficulties of this enterprise may have decreased. The economic difficulties are rather greater. The operation will have to be conducted, if it can be conducted, against the background of a serious shortage of world liquidity.
These are very big issues, and they are too big for this Government to tackle. I do not say that in terms of their intellectual capacity. The Financial Secretary who is to wind up, has proved more intellectual capacity over these matters than most people. But they have lost confidence and credibility, and they have not the time left to them to recover the necessary confidence to see a job of this kind through, especially after this Letter of Intent: for their signature of it makes them no longer entirely free agents.
I spoke just now of the parallel of 1951. May I, in conclusion, make one other reference to that date? In 1951, Mr. Attlee came to the conclusion that the Labour Party had shot its bolt and that it was no longer possible to go on in office without the risk of a serious split. I suppose that the quarrel over prescription charges, in which the present Prime Minister played a major part, had something to do with it. I would say to the present Government that the policy of deflation on which they are embarked in this Letter of Intent will raise storms in the country, and in particular on their side of the House, which will make the recent argument about industrial relations look like a sham fight. I wonder whether the Prime Minister would not be well advised to ponder well Mr. Attlee's example and to lead his Party—to defeat perhaps, but still to survive as a united and constitutional Opposition.

Several Hon. Members: rose—

Mr. Deputy Speaker (Mr. Harry Gourlay): Order. May I remind the House that many hon. Members wish to participate in this debate, so shorter speeches may assist the Chair and other hon. Members?

6.25 p.m.

Mr. James Dickens: I hope that the right hon. Member for Brighton, Pavilion (Mr. Amery) will not think me discourteous if I do not immediately follow some of the points which he made, in an interesting speech which was regrettably marred by a somewhat laboured and at times offensive turn of wit. For I want to turn immediately to the two opening speeches, by the Chancellor of the Exchequer and by the right hon. Member for Enfield, West (Mr. Iain Macleod).
One thing which stands out clearly from those speeches is that there is a broad agreement between the Government and the Opposition Front Bench on post-devaluation economic strategy. The right hon. Member for Enfield, West, despite all the wit and behind the debating points in his contribution, put forward not a single constructive proposition of any kind, apart from a passing reference to the need for a new Bretton Woods Conference. He, like the Chancellor, supports a policy of deflation which must inevitably lead to a higher level of unemployment, to a reduction in the level of investment and to a lower level of economic activity generally.
On unemployment, I do not want to accuse the right hon. Gentleman of insincerity. He is genuinely concerned about the problem. But saying that is one thing. Supporting tacitly a policy which must lead to a policy of higher unemployment—not, perhaps, in prosperous Lewisham but in South Wales, the industrial North and in my native Scotland—is quite another thing. The contradiction is apparent and one absolutely crystal-clear result of the sort of policies which they both support has been set out quite categorically and very alarmingly in the Board of Trade Journal on 2nd May, which gave the index of industrial production in this country and other advanced industrial countries since 1963. In this way, we can clearly measure the effects of deflation on the British economy. Taking 1963 as 100, the level in 1968 for all industrial countries covered


by this survey, has reached 134. For the U.S.A. it was 133, France 124, Germany 127, Italy 136, Japan 190, and for Great Britain 116.
The facts are clear for all to see. The policy of the Tory Opposition and the post-devaluation strategy of this Government are perpetuating a condition of chronic and recurring economic weakness for this country which we will pay for dearly in the 1970s and the years beyond.
In a buoyant but, in my view, complacent, speech, the Chancellor tried to dismiss some of the economic alternatives argued from this side as if they were only held by a small minority in the Parliamentary Labour Party. It is fair to say that a far greater number of my hon. Friends would support the terms of the Early Day Motion in my name than the number who actually signed it. We know that greater numbers have done so on occasions in the past and I am confident that, in many aspects of these policies, we have a much wider basis of agreement.
In its most recent Economic Review, the Trade Union Congress has advocated almost exactly the policy contained in that Motion. We have the support also, I see, of The Guardian newspaper and now—believe it or not—of the New Statesman. So progress is being made. The fact that there is an alternative policy is no longer denied or ignored. I see that even Sir Leslie O'Brien in an interesting speech to the Building Societies Association on 22nd May last said:
Those who are reluctant to accept the conclusion that we have to have a pause or even reduction in our standard of living say that the answer is to expand our output so that all demand on it can be accommodated. This is a positive and creative approach"—
this from Sir Leslie O'Brien, let us remember—
to which one instinctively responds, particularly after the rigours, real or imagined, of the prolonged squeezes and restrictions of all kinds.
If we have a recognition by Sir Leslie O'Brien that this alternative policy of mobilising the full economic potential of the nation is a "positive and creative approach", then indeed we are making some progress in discussing the economic affairs of the country.
The right hon. Member for Enfield, West made at least one remark with which

I agreed. He used the word "charade", and I agree that much of the debate so far has been a charade because of the broad agreement that exists between the two Front Benches. The real issue before the House was stated in precise terms by a contributor to "Lombard" in today's Financial Times, when he wrote:
The question here"—
that is, in effect, the question before the House—
is whether the interference in Britain's affairs by the International Monetary Fund is on the right lines.
Without questioning the existence of the Fund or its general activities, the contributor went on:
This is the matter to which we can now most usefully direct our attention. Fund doctrines are not infallible. Some have had to be discarded because they showed themselves to be hopelessly unrealistic. Obviously it is unlikely that we could afford to count on Fund assistance without promising to observe those that are still in the running. The big issue is whether we would be better off without the assistance at all.
That is the central question. The main argument is not whether or not there are hidden clauses behind the Letter of Intent, although the English language has been stretched to breaking point in the Letter to such an extent to get across the message that it is, as I said on Monday at Question Time, soporific. Or, as my hon. Friend the Member for Birmingham, All Saints (Mr. Walden) said a month ago, it is not the Letter of Intent that matters but the intent.
The effect of all this was clearly illustrated in a recent speech made by my right hon. Friend the Financial Secretary to the Treasury, whom hon. Members will be glad to see restored to health and vigour and who is, I suspect, an ally of expansion in the Treasury. In a remarkable speech made to the Press Club in London he said:
Britain at the end of an exhausting and costly war had immense adjustments to make to her economy to enable her to pay her way in the world and to provide a rising standard of living for her people. We added these three burdens: (1) defence and aid overseas, (2) the export of capital, and (3) the sterling area and its reserves. Is it surprising, then, that with these three added burdens, the postwar period has been marked for us by continuous exchange pressures which frequently build up to crisis level? These pressures and crises have had a profound effect on Britain's domestic economic policy and have produced the notorious stop-go policies which have done so much to impede our industrial progress.


I had the pleasure, as a guest of the Press Club, of listening to my right hon. Friend speak on that occasion. Another guest was Mr. Hugh Cudlipp, who also made a witty contribution. Mr. Cudlipp is the Chairman of the International Publishing Corporation, which runs two leading national newspapers, the Daily Mirror and the Sun, both of which have a reputation—I believe a thoroughly bogus one, at least in economic affairs—of being radical journals.
One might have thought that the speech made by my right hon. Friend, who was seated at the same table as Mr. Cudlipp, would have had considerable attention in the Daily Mirror, a newspaper with a mass circulation, particularly since the Daily Mirror has argued, certainly more than any other newspaper, for precisely the sort of reactionary, dead beat, policies which, alas, the Government have been pursuing for the last 18 months. One would have thought that the Daily Mirror would have given prominence to my right hon. Friend's speech, particularly as it was widely commented on in, among other newspapers, the Guardian, The Times and the Sunday Telegraph. Instead, the Daily Mirror ran only five paragraphs on the subject, and then on page 28.
I put it to Mr. Cudlipp and the Daily Mirror that they have an obligation to their readers to print both sides of the argument. Recently I was given an opportunity, which I willingly seized, to state the position which a number of hon. Friends and I take on this issue. I hope that in future the Daily Mirror will see that remarkable speeches of this nature—I considered it to be the best speech made by a Treasury Minister in Britain for 20 years—get something like the prominence which issues that are trivial receive in the Daily Mirror.
What has been the effect of deflation since devaluation? Since a number of my hon. Friends and I have opposed this economic strategy since its earliest days and are, therefore, entitled to be critical about it, my right hon. Friend the Chancellor of the Exchequer will no doubt boast that in 1968 we attained a level of 4 per cent. economic growth, which he has described as a good achievement. However, it compares with a level of 6·2 per cent. attained, on average, by

other industrial countries. The figures for Japan and Western Germany were markedly higher than that. He claims that the figure for 1968 was an advance on 1967, but since the 1967 figure was an improvement on the figure for 1966 of only 1 per cent., that is saying very little.
Bearing in mind that the expected rate of economic growth for 1969, of rather less than 3 per cent., will be appreciably lower than that attained in 1968, it must be remembered that it will be less than that at the end of this financial year—this at a time of acute financial stringency in public expenditure, particularly on the level of investment and unemployment.
The level of investment since devaluation is particularly worrying. We must consider the figures because unless we are careful we may find ourselves arguing that the present level of investment is satisfactory. However, if one measures, in real terms, the level of investment in the private sector in 1968 with other years—in that year it came to £3,300 million, only £80 million higher, in real terms, than the 1965 level—one finds that the level of investment in the private sector has been worse than the level obtaining in every other advanced industrial country in the world for many years. One then sees that the position is one of acute and growing seriousness.
Mr. Catherwood, Director-General of the National Economic Development Council, constantly makes this point. He recently drew attention to the fact that we are so far behind in some of the newer technologies that we should get out of the business altogether. He points out that there is no prospect of our catching up because Japan, Germany, Italy and France are advancing so much more rapidly in some technologies than we are. This is the central question confronting the economy. In a real sense, nothing else matters. I turn to the third aspect, and that is the level of unemployment—

Sir G. Navarro: Before the hon. Gentleman leaves the question of investment—

Mr. Dickens: I am sorry, I do not want to give way. I am most loth to take some Worcester sauce. This evening I must make progress, because the argument is


complex, and I should, if possible, like to make it without too many interruptions.
My third point relates to the level of unemployment since devaluation. It is quite true that the level has not gone as high as some thought it might in late 1967 or late 1968, but are we in this House to sit back and say that half a million or 600,000 men out of work as a permanent feature of British society is a factor with which we can be satisfied'? Not a bit of it. I say to the Government that to my hon. Friends and myself the unemployment of even one able-bodied unemployed man represents social waste and a human tragedy. We should always be resolved to put this matter as a top economic priority and not, so to speak, as the priority of last resort, as it seems to have become in the recent past.
I want now to draw attention to the alternative policy that we have outlined in this House. I will not discuss them in detail again tonight for I have argued for this policy here, in the country, in the Press and elsewhere. I do not say that our proposals for liquidating part of the country's overseas portfolio investments and using revenue from that source as a means of repaying foreign debts, and our proposals for introducing selective import quotas, placing further restrictions on capital outflow and making further reductions in defence expenditure, are the end of the matter. But I do say that until the country and the Government move towards this position we can make no significant social advance. That advance cannot be made until we clear our minds on the economic priorities and recognise that, for example, a £300 million surplus on balance of payments—is not the first priority.
The first piority should be the health of the economy and the level of investment, and the need to ensure, not that the economy is unduly insulated against the pressures of the world's markets, but that our currency and the country's credit position should not be put in a totally unprotected over-exposed position; in short, that we do not take on obligations which no other comparable industrial country would look at for an instant.
My right hon. Friend the Chancellor is an able man, an amiable man; hard working—but he is, I think, utterly

wrong in the analysis and diagnosis he gave this afternoon, and in what he said about capital outflow. He told us that there was no room for anxiety, because for the 12 months ending March, 1969, the level of capital outflow was broadly in balance. I tried to interrupt him but, unfortunately, he would not give way. I regard it as so serious a matter that I must particularly refer to it, especially because the figures are quite striking and present to me a totally different picture from that which he drew for the House today. To coin a phrase, he must not be allowed to get away with it.
I hope we are not arguing that because the capital account is, so to speak, in balance because of the inward flow of capital, things are therefore satisfactory. In the 12 month period ending March 1969 the gross capital outflow totalled £604 million. This was, largely fortuitously, offset by the inflow of foreign capital, particularly in the second quarter of 1968, when there were some exceptional items. But within this figure of £604 million of gross capital outflow we find a sum of £150 million devoted to portfolio investment—and most of that, of course, went to Australia.
My hon. Friends and I have raised this question over the last 12 months why have steps not been taken by my right hon. Friend to stop this capital outflow; to stop this weakness, this obvious drain on our balance of payments? I suspect that the answer is that the Australian Government laid down as a condition of signing the Basle agreement that there should be no restrictions on the outward flow of capital from this country for portfolio investment in Australia. My hon. Friends and I believe that we should look to our own needs, without being at all autarchic about the matter. We must realise that we have responsibilities which may conflict with the interests of the Australian Government. It is unfortunate if we offend our Australian friends, but we have to place restrictions on this kind of capital outflow and take steps to end this source of weakness. It is surely wrong to build up Australia at the expense of our own economy.
I have not been able to refer to the problem of money supply in any detail, but I close by saying that to place further restrictions on the money supply in the economy, having already taken eight


specifically deflationary steps since devaluation in 1967 could lead to a position in the months ahead which might prove uncontrollable. No one really knows what the effect will be in this country at this juncture of taking steps to restrict the money supply, because the present velocity of circulation of money is vastly greater than it has ever been, and the effect of that on economic activity, on investment and on the level of employment could very well be profound. I therefore add this word of caution before we seek to act in this fashion, let us look at the matter, and try to diagnose it coolly, properly and accurately.
Last week, the Government, after much discussion, accepted the common-sense arguments of the T.U.C. on labour relations, and no doubt we shall hear more about that in this debate and in future. My right hon. Friends, having listened to the trade union movement on the subject of industrial relations, and having accepted the movements advice, which I am sure will prove much more satisfactory than a resort to law, which has been disastrous in Australia, should now turn their attention to the arguments of the T.U.C. on the economic conditions of the country, and on the positive, constructive alternative proposals which I have tried to outline this evening.

6.48 p.m.

Mr. Hugh Fraser: I do not want to follow at any great length, the arguments advanced by the hon. Member for Lewisham, West (Mr. Dickens), but I agree with him when he says that to anyone outside not involved in these matters, it must seem quite crazy, if we look at the country as a business, to borrow money to contract and run down that business. It is bad policy or bad management. That is the ordinary common sense of it as seen from outside the House.
Just for a few minutes I want to touch on the immediate issue of the debate, which is the question of the balance sheet being shown to us by the Government in regard to our external indebtedness; and of the Letter of Intent, which is a prospectus of what we propose to do. It might be easiest to discuss how serious the situation is. I said that it was serious when I last spoke on the subject in April, and I believe that it is still serious.

Except to a limited extent, there is no time to adumbrate on what should be done, but it is worth saying how bad the situation is, because I do not think that it is generally known. I do not think that that is generally known. Therefore, we should look at the balance sheet for a moment.
The balance sheet is clearly recorded and has been added to a bit by the Chancellor this afternoon. If we look at the Financial Statement and the Budget report for 1969–70, in table 7 we see the actual United Kingdom deficit and the way in which it is financed. There is an item there of other official borrowings, which are put at £2,000 million. My right hon. Friend this afternoon suggested that when we wrote Letters of Intent we let the public know what that other borrowing—from the central banks—was. It is important that now we should be told the truth about this figure. Undoubtedly the £2,000 million is infinitely lower than the total we owe abroad in swap arrangements, various recycling arrangements and direct loans to foreign and central bankers.
That is why the balance sheet as put forward is bogus. If we put forward a bogus balance sheet we shall run into trouble when people find out about it. Every European banker knows what the figures are, so I ask the Financial Secretary to the Treasury, when he winds up, to tell us more about figures which were always included when we were in power. I think the balance sheet is grossly distorted by the figures the Government have allowed themselves to produce, which do not accurately cover the whole seriousness of the situation.
Secondly, I come to the prospectus, which simply is that we are to produce £300 million surplus this year. When I hear any Socialist Chancellor of the Exchequer and especially this one speaking in optimistic tones, I become highly alarmed. I noted what he said this afternoon about buoyant world trade, world interest rates of 10 per cent. and no danger to the financial international situation although we have the whole world rocked by the question of the mark, the franc and perhaps the £ at a later date. These are real dangers for this autumn.
To say that everything is fine and that we are steaming along with world interest rates at 10 per cent. and to suggest


that this is the way to expand trade and investment seems strange. One has only to point to borrowing money at 10 per cent. or 11 per cent. in the South American economy, because if we do not invest now we lose out on the deal. This is what is happening. It is said that this is good for world trade and that there is a buoyant stage ahead. I very much doubt it.
When at this stage we have not got a guarantee of the third or fourth tranche from the I.M.F., it would be wise for Britain to pursue something which could be called a policy of realism rather than the policy which this Government have pursued again and again, of whistling in the dark and hoping that something will turn up. As my right hon. Friend the Member for Brighton, Pavilion (Mr. Amery) said in his very distinguished speech, one of the troubles about this Letter of Intent is that it totally eclipses any initiative on our part and prevents us from indulging in new policies. Yet we find a totally untried policy being indulged in. It is a policy which is totally unproven and has all the mystique of the debates we used to have on the fiduciary issue. It is a fiduciary issue debate which has not been properly resolved.
It is ridiculous when we have £25 billion accessible savings to make this leap in the dark. One of the things which the Government are not prepared to do is to look at immediate questions. I have always been against import controls. I believe they are very dangerous, but when we are in a situation like this where we owe vast sums not only to the I.M.F. but terrifying sums to other central banking organisations with the sort of interest we are paying on swap arrangements and special arrangements, the Government should come clean and tell us what the true balance sheet is. [An HON. MEMBER: "Which they know."] Which they know, and which the bankers know. Only the wretched people of this country continue to be misinformed by Minister after Minister.
I hope that when they look at these things they will take with seriousness the need to achieve a balance. If need be they can achieve it by import controls coming in now, but they are living in a world of cloud-cuckooland to have signed this Letter of Intent. I am a great

believer in expansion of world trade, but when we get to a point at which the country is in grave economic danger and has pledged itself to get a solution which is highly unlikely, we should have more freedom and more initiative and the Government should be prepared to stop the series of policies which so far have been disastrous. All they have done is to add a new unknown ingredient.
There comes a time in the lives of many nations when a Government no longer has authority. This Government have totally lost authority. There is no confidence in their judgment or their power. It is not even certain where power lies today, in a divided trade union movement or a divided Labour Party. One thing is certain, that this Government cannot get the country out of the troubles which now surround it.

6.57 p.m.

Mr. R. B. Cant: I am slightly worried about the tone of the debate, because I believe that to some extent it is a case of sour grapes. We have become conscious of the fact that we, a former great nation, no longer count for very much: we do not belong to the big league in world economies.
I should like, if it were possible, to transplant myself from this confined Chamber to the boardroom of the International Monetary Fund and listen to the discussion that goes on there when Britain once again applies for a recycling of debts, or whatever it is. We appear to be very annoyed with the Fund, but I should imagine that the Fund has almost reached the point where it finds discussions about Britain's problems slightly tedious.

Sir G. Nabarro: Exasperating.

Mr. Cant: I put my opening gambit in that way in order to get a slightly favourable response from the Opposition, because I always find that this gets me off on the right foot. We must face the facts. On balance, I welcome this Letter of Intent, beause I think that for the first time we are on the verge of pursuing policies which I regard as realistic. [HON. MEMBERS: "Hear, hear".] I go on to add—I shall not get a "Hear, hear" for this—that I share the Chancellor's optimism. I think that we can


at this moment as never before look forward to the future with a measure of optimism.
I shall confine my remarks to the esoteric doctrine of money supply. In some measure I am in agreement with hon. Members on this side and with certain things which have been said by hon. Members Opposite. I am constantly amused at the strange groupings of Members—members of the Right, members of the Left. At one point I thought that we should recruit the right hon. Member for Brighton, Pavilion (Mr. Amery) as a contributor to Tribune.
The central fact we must face—I think that the Government have faced it—is that we have reached the point which marks the end of an order. I do not think that as a result we should throw up our arms in despair or, just because we cannot see a pathway clearly defined for the future, refuse to take it. Let us be quite clear that Britain, not only under this Government but also under Conservative Governments, has followed almost blindly the implications of the doctrine of Keynesianism. This, equally, was a doctrine born of depression.
What has happened to make Keynesianism no longer a totally acceptable doctrine is simply the secular decline in our industrial efficiency. I am not one of those who believes that demand management of any kind can guarantee the right allocation of resources, high rates of growth, and so on. Fundamentally this is a consequence of real factors in the economic situation. Particularly because we have been reluctant to lay aside our ambitions in social welfare, with certain implications—I am expecting the applause of the Opposition here—for public expenditure, we have been faced with ever-increasing rates of taxation.
The trouble about Keynesianism is that it was essentially a sort of income-expenditure approach. Gross national product depended on spending, so our Treasury officials and others made a detailed study of the patterns of expenditure of the major components of demand. The main way in which these would be influenced was through the tax lever. As a corollary of this—this is where we have gone wrong, because our gross national product has not risen quickly

enough—we let monetary policy go into a decline.
This was hallowed by the Radcliffe Committee at a very point in time when the Tory Government were beginning to take an interest in monetary policy; because, although we accepted essentially a doctrine in which, as one writer so coarsely said, monetary policy became the eunuch of economics, the supply of money at any particular time merely came out in the wash: nobody determined it. The total responsibility of the central banks became one of the management of the National Debt—keeping the supply of money, keeping interest rates in a sort of orderly condition so that when the Government were faced with the need for redemption or for borrowing the market would be all right.
Anybody who has studied Dennison's "Why Growth Rates Differ", knows that Britain, where the Dennison residual is fairly high, faces a considerable problem which is only partly related to the proportion of our gross national product that we allocate to investment. It has much to do with such things as attitudes and psychology. Once the country's relative efficiency is declining, for whatever reason, it is inevitable that, because growth rates are rising slowly, more and more recourse must be had to taxation. Because growth rates are rising slowly, the balance of payments deficit becomes worse as time passes, because we are relatively decreasingly efficient.
Therefore, any Government worth their salt will claw back the sterling counterpart of the balance of payments deficit and use it for their own domestic financing purposes. Where this situation develops and inflation grows, the central saving-investment equation in the economy becomes distorted. In view of the return that savers have been getting net of inflation and tax, in view of the cost of borrowing net of inflation and tax, it has become far too discouraging to save and much too cheap to borrow.
In this general situation, many of our traditional policies must inevitably fail. I shall not discuss the policies which have been put forward for import controls and all these striking innovations, which I think would be on balance disastrous. I merely say that we should look to our more traditional methods of demand management in a new context.


As the right hon. Member for Enfield, West (Mr. Iain Macleod) said, fiscal policy inevitably fails if the left hand takes out more than the right hand pumps in. There is then the gentle process of the cancellation of effort taking place.
The monetary policy, as tradition would define, almost inevitably is bound to fail, because all that is being done is an increasing pumping of liquidity into the system and, at the same time, trying to bring the boot down on poor bank managers and telling them not to pass on the extra liquidity that the Government have so generously provided.
Once the economists invented cost push. This new approach to cost push inflation was thought up, I think, in the back of a taxi cab at the same time as the Department of Economic Affairs was conceived. This, again, is almost inevitably doomed to failure, because in conditions of increasing liquidity how on earth can pressure be brought to bear on incomes to keep them within any sort of straitjacket of a 3½ per cent. norm?
If what has been happening has been a consequence of the fact that we have not controlled the supply of money, whatever the hazards I believe that the Chancellor is right in embarking upon the implementation of this policy, and I do not think that the consequences will be anything like as harmful as many hon. Members have predicted.
That modest man Professor Friedman makes certain dramatic claims for his policy. He states definitely, with a certain arrogance, that the stock of money is a determinant of gross national product, and he states—with due apology to my hon. Friend the Member for Lewisham, West (Mr. Dickens)—that the velocity of circulation is a constant and is not something in the Keynesian framework which matches up changes in the supply of and demand for money.
At the same time, Professor Friedman makes such a statement as this:
My own conclusion is that we simply do not know enough to be able to use either fiscal policy or monetary policy as a flexible and sensitive instrument to control the course of the economy. 'Fine tuning' is a wonderfully evocative phrase, but we do not have the knowledge or the instruments to make it more than a phrase".
There is a great deal in that, and we must accept the logic of it in the sense that, perhaps, we are right for change.
Therefore, I am on the side of those who say that here is something which we should be grateful for, if the I.M.F. has drawn our attention to it.

Mr. Iain Macleod: It has all right.

Mr. Cant: Well, I put it in that way. I say that despite the misgivings which some people feel about the application of this doctrine. One could go into it further. One could discuss what sort of definition of money supply we have in mind. The British Treasury, of course, could not accept money supply" as a term from across the Atlantic, and it had to invent another one. Perhaps we need another one because the balance of payments deficits and so on are so considerable. But other people are genuinely more concerned because Professor Friedman is a bit hazy about his lags. Precisely how long does it take for an action in monetary policy to have a result? It is a bit alarming to read that it might be anything between three and 18 months.
But I believe that the application of this policy is our one hope for making the sort of approach which the Chancellor is taking realistic and successful. Without embarking on the sale of our dollar portfolios, import controls, gliding parities and all the other devices which are mentioned, it offers us, in my view, the prospect of that sort of element of monetary dehydration in the economy which will make our tax policies, our financial policies and the rest effective in the near future.
Obviously, we turn our backs—especially those of us who met him in the 1930s—on an old friend with great reluctance. We can never believe, to use the phrase which Keynes himself once used, that Keynes could become, after all, a defunct economist. But, as I said at the outset, Keynes wrote in the 1930s, at a time quite different from the present when the inbuilt inflationary pressures, even with unacceptable levels of unemployment, are so great that we must accept any device we can use to reduce them.
If we want to see what happens in other countries, if we want to see whether the policy works anywhere, we can look at Germany and Japan. Those countries, where the strictest control over money supply has been imposed, have achieved remarkable growth.
At one time—I do not go back to the fiduciary issue of the nineteenth century—the world economy was, possibly, crucified on a cross of gold. It would be wrong for this country to permit itself to be crucified on a cross of the gilt-edged market and thereby be prevented from accepting one of the new policies offered to it.

7.16 p.m.

Mr. John Biffen: It is a real pleasure to follow the hon. Member for Stoke-on-Trent, Central (Mr. Cant). I was glad that my right hon. Friend the Member for Enfield, West (Mr. Iain Macleod) came into the Chamber and stayed to listen to him because I well remember my right hon. Friend, in a speech in which he sought to reprove another of my right hon. Friends, saying that my other right hon. Friend should not behave as though Keynes had never lived. The hon. Member for Stoke-on-Trent, Central has given a closely argued and convincing demonstration that Keynes, has both lived and died. I hope that my right hon. Friend the Member for Enfield, West will reflect upon his speech in depth. It was a fine exposition and defence of the Government's policy coming from their back benches, and that in itself is an occasion.
During the hon. Gentleman's speech, my right hon. Friend the Member for Stafford and Stone (Mr. Hugh Fraser) whispered to me in an aside, "Are you a convinced Friedmanite?" For the sake of brevity, because, on the whole, conversation during other Members' speeches is not very congenial, I said, "Yes, and if I have a chance I shall briefly explain why". This I do now.
Convinced Friedmanites are sceptics. I believe Friedman himself to be a man of considerable scepticism about the consequences of economic doctrines, a point made also by the hon. Member for Stoke-on-Trent, Central. It bore out the impression I had when, two years ago, I had the pleasure of attending a Mont Pelerin Society conference which Professor Friedman also attended, though not then realising that we were graced with company which would have such immense significance for the times in which we now live.
A good deal of today's debate has inevitably involved peering a little ahead,

and there are always those who feel that we are on the edge of some sort of abyss of world and domestic economic depression. Broadly, I agree with the hon. Member for Stoke-on-Trent, Central: I do not consider that we are peering over the abyss and seeing world and domestic economic depression. I join with my right hon. Friend the Member for Enfield, West and hope that the Chancellor's analysis of the likely course in terms of employment and investment will be fulfilled during the coming months. I might have some slight doubts about manufacturing investment, but I would then be engaging in the very kind of fine tuning which I rather deplore when it is practised by others.
I have observations to make on only two matters. The first is the money supply, and the other, which need not necessarily be connected with it in any sense, is the exchange rate. It is very important that we realise that on the question of money supply there is a major change in Government policy. The hon. Member for Edmonton (Mr. Albu) tried to pretend that it was business as usual, but a bit up-dated. I do not think that an analysis of what has been happening will bear that construction. There has been a fundamental change in Government policy.
The Tribune Group is possibly a little late in catching up with this, because the hon. Member for Ebbw Vale (Mr. Michael Foot) spoke with some asperity about Professor Paish, but, as my right hon. Friend the Member for Enfield, West suggested, that is long ago. It is the amiable spectre of Professor Friedman that presides behind the Chancellor. Anyone with any political sensitivity will know that he was the brains-truster for Barry Goldwater in the American presidential elections five years ago. Therefore, I can understand some sensitivity on the part of some hon. Members who see a Government possibly influenced by such views, although I do not think that election disasters necessarily go in pairs. I would like it to do so in this instance, but I think that broadly speaking the advice from the Chicago school is beneficial on balance rather than harmful.
The Government state in paragraph 8 of the Letter of Intent:
… the Government attaches the greatest importance to monetary policy …


If that is so, the House might reasonably reflect on how this is likely to have an effect on the citizenry, individuals and institutions that operate the great array of domestic credit, and ask again what should be an abiding question in the pursuit of this policy—"Where stands the rule of law?"
We have three broad sectors of credit operation. First, there are those areas directly covered by law, such as hire purchase regulations. Then we have the very substantial, and probably major, area of the operation of the ordinary domestic clearing bank system, where there is a great deal of "voluntary" behaviour as a result of the highly sophisticated and developed relationships between Government and the banking system. This is an area in which the banks operate "voluntary" limitations on advances and where there has been some discord recently. My right hon. Friend the Member for Barnet (Mr. Maudling) was right to draw attention to the acrimony that arose between the banks and the Government over the recent cutting of the rates of interest paid on special deposits. There is yet a third area, that of increasingly sophisticated credit operation which falls entirely outside legal restraint. Check trading is an obvious one. I suspect that inter-company credit financing is a developing one, and factoring is another. So one could go on.
One of the arguments against the Friedman school is that the developing complexities of credit in a sophisticated society make his techniques possibly a little too crude for application. If the control of domestic credit is central to the operation of the Government's policy in future, we should be very concerned at how the various component sectors are affected, and about there being legal weapons in respect of certain forms of credit but none in respect of others. Those industries subject to hire purchase regulations, for example, may find themselves particularly affected, and harshly and arbitrarily so. I would have thought that the surplus the Government had this year would enable them to operate in the Treasury Bill market in such a way as to lessen bank liquidity, so that leaving matters to the ordinary banking mechanism would have a substantial effect on credit activities without the

necessity for additional Government intervening power.
My right hon. Friend the Member for Barnet has already spoken up on the dangers implicit in this situation. I hope that it is an aspect of the policy that we shall keep under careful supervision. For we have learned that there is great need for the House to distinguish between Government actions which proceed from laws enacted here and Government by White Paper.
After what was said by the hon. Member for Edmonton the question of exchange rates is presumably an issue of great emotive content. I was touched—and I shall long recollect this debate—to see the hon. Member for Lewisham, West (Mr. Dickens) rise to protect his hon. Friend the Member for Ebbw Vale from the acusation that he had attacked bankers. I will attack bankers, and I hope that no one will rise to protect me or to suggest that I am misunderstood. It is a perfectly reasonable occupation. I say that even in the presence of my hon. Friend the Member for Cities of London and Westminster (Mr. John Smith) whom I hope and trust we shall long have with us. [HON. MEMBERS: "Hear, hear."]
The reason why I shall go through the Division Lobbies tonight with much enthusiasm is that I reckon I shall be giving my private, individual raspberry to the Letter of Intent, based on paragraph 2, which says that all the various arrangements
… will assist in maintaining stability in the international monetary system".
I am not so devoted to the international monetary system as the signatory of the Letter of Intent. I realise that in a debate like this we cannot expect those on the Government Front Bench to share with us whatever doubt they have about the international monetary system. But it is an ideal occasion for us to share with them what doubts we have about the system because we are under no such constraint as we understand the Government properly to be.
I believe that there has been a cult of fixed exchange rates. Bretton Woods has developed into practically an unchallenged religion. It is delightful to find that the taboo that once existed on the subject is gradually being overcome.


I was delighted that the right hon. Member for Enfield, West, endorsed the view of my right hon. Friend the Member for Barnet in suggesting that there were possibly better alternatives which involved a system of greater flexibility in exchange rates. This is a subject on which I shall part company with the hon. Member for Stoke-on-Trent, Central. I am sorry so to do, but this is a shifting situation. Anyone who has observed the course of Government policies over the past few years can conclude who has been shifting.
Already there are plenty of signs that people in the House are questioning the virtues of the present exchange rigidities. The hon. Member for Ashton-under-Lyne (Mr. Sheldon) has given views in favour of more flexibility, and certainly the hon. Member for Cornwall, North, (Mr. Pardoe) is a floater.

Mr. Robert Sheldon: I am sorry to interrupt the hon. Gentleman, but he has misquoted my stand. I said that there should be orderly variations in exchange rates. That is by no means the same thing as a floating £.

Mr. Biffen: I did not suggest that the hon. Gentleman was arguing for a floating £. I said that he was arguing for more flexibility. Whether the £ glides, crawls or floats, the important thing is that the hon. Gentleman is challenging the status quo, an arrangement which for all too long has been non-discussable. But let us make no mistake about it. Once the argument begins to develop, we shall encounter strong international institutional objections to any alterations.
The opposition will often come from bankers, who themselves have institutional interests in maintaining the status quo and it will come from the whole of the bureaucracy, which has developed also an institutional interest in maintaining it. In this context, I was interested to see the warning that came from Mr. Raymond Barre, Vice-President of the Common Market Commission responsible for monetary affairs. The Financial Times reported him recently as addressing the Federation of German Industry in Bonn. The report began:
A cautious approach to any change in international exchange rates was urged today by M. Raymond Barre …

We know that the Common Market agricultural policy would be in great disarray if it were the subject of changing exchange rates within the Common Market countries. I believe, therefore, that there will be no shortage of our so-called foreign friends who will try to convince us that there is security in serfdom.
In approaching the issue of greater flexibility in our exchange rates, we must be prepared to do it ourselves if we conceive it to be in our national interest and we must not allow it to be a non-discussable subject because we are told that it is impossible because of outside opinion. All too often we are conscious that policies which many of us have believed to be desirable for the country appear to be being imposed by outside authorities. We find this distasteful. A great deal of argument is, properly, about to what extent the Government are under the influence and control of the I.M.F.
At the end of the day, I believe that, on the issue of exchange rates, no less than on other subjects, we must be prepared to take that decision which we think to be conducive to our national interests. I hope, therefore, that my right hon. Friend the Member for Enfield, West will be encouraged so that, when his days of quick and early decision come in the Tory Government which surely cannot be too far away, he will make a unilateral declaration of independence from the bondage of the fixed exchange rate, because I believe that that must be the starting point of the search for economic liberalism.

7.34 p.m.

Mr. Robert Sheldon: I am always interested to hear the hon. Member for Oswestry (Mr. Biffen), with both his scepticism and the tinge of anarchy that he brings to our deliberations.
Where do I stand on the question of money supply? With me, everything flows fundamentally from my views of the economic situation, stemming as it does from our commitments due to the end of our Empire and the necessity, with that end, for our country as a whole to switch its products and markets while, at the same time, maintaining an increasing burden of defence expenditure which proved in the end to be insupportable. Although we are changing now, the change is obviously very slow, and


there are still disadvantages with which we are burdened. I do not want to go too deeply into that aspect, about which I have spoken before, but I wanted to mention it because it leads into so many of the views I hold.
I concede that the effect of general increases in taxation upon the amount of consumption is delayed for a number of months. When purchase tax is increased, there is anticipatory buying. There is a general conviction that improvements in our living standards will continue indefinitely and this leads to further increases in consumption. Finally, and probably most important, there is a general belief that inflation is here to stay and this leads to extra buying.
So the old fiscal and monetary policies alone are not enough. Because of this, there is need for domestic credit control. Because of this the theory of money supply as presented has validity to some extent. It is its quantitative nature that bothers me. One should not go overboard for the theory, as my right hon. Friend the Chancellor has done. His journey from scepticism to a commitment of absolute precision has been so extreme that it makes me doubtful as to how likely such a policy is to succeed.
Although the theory has been worked out with great elaboration in the United States, we have our doubts, as Americans do, about whether it will fit their existing situation. But to transfer their theory to us, where the changes are even greater and where that which is indeterminate is still harder to predict, means that we may be committing ourselves to something that we are unable to fulfil, and if if we are unable to fulfil it we may find ourselves having to deflate even further than is now under consideration. We know that each visit to the I.M.F. tightens the bounds within which we are able to operate.
I want to ask a question of my right hon. Friend. Although I have had an answer to it, that answer was not quite sufficiently accurate for my purpose. We know that the money is to be paid in three quarterly tranches. Paragraph 9 of the Letter of Intent tells us that, at the same time, there are to be three quarterly reviews of domestic credit expansion. Does the one depend on the other? If that is so, what is the difference between the trigger, which is automatic, and the

consultations, which can be varied in many ways but could come to much the same sort of situation? Although I understand that the failure to restrict domestic credit expansion does not automatically cut off the money, the fact that the tranches and the reviews are to be quarterly suggests a strong link between the two sets of figures. What sort of precision is to be required? I know that it will not be to the nearest dollar, obviously, but how dependent is the one upon the other?
One of the matters I feel most strongly about in the Letter of Intent is the commitment to trade liberalisation, because import control has always been the last shot in our locker. If the Government have not been convinced by the arguments which I and others have put forward, at any rate we have held out hope that at some stage, if things unfortunately did not live up to their optimistic predictions, this course of action was something which could be taken to get our balance of payments right in a way which is not available by any other method.
Up to now, although I have argued, with others, that there are certain advantages in the use of import quotas on certain consumer goods, how will it be if the use of such quotas automatically cuts off the credit which we need and which is so essential in the planning of our debts?
Worst of all, I suppose, we reach the situation that if as a result of a number of discussions and debates of the kind we are having here today, when a number of people have begun to see the value of the use of import quotas, people who have not previously spoken on their behalf, the Front Bench is convinced and the Government are converted to the use of import quotas, they would be unable to exercise that conversion by introducing them. That would be quite wrong.
The value of import quotas is the greater certainty they would provide for our balance of payments. We now know realistically that the encouragement of exports has reached the point where not much more can be obtained from it, although, of course, everybody agrees that increases in exports are the best solution to our problems. We therefore have to look to the other side of the balance of payments equation, and it is on imports


that we can still act in a way which will produce the required degree of certainty, because we could impose quantitative measures as to precise categories of articles which we felt not to be essential and the import of which we could control.
I should like to list the objections to import quotas. The advantages are greater certainly, as certain as anybody can be in economic affairs, but at least having as much certainty as one can ever hope for. The disadvantages, some of them red herrings, are said to be numerous.
First, it is said that capacity at home will be under great strain. I do not accept that that would be insupportable. When there is pressure of demand on an industry, it can become more efficient. I argue this from my own factory experience. Anybody who has experience or understanding of what goes on in industry knows that it is when the pressure of demand from the sales side comes upon industry that industry can produce not only more, but more cheaply, because that is when there is the required investment to produce the extra goods. If necessity is the mother of invention in everyday life, the pressure of demand is the cause of increased production in industrial life.
Because of this and because of the large unemployment, which represents a great unused capacity in human beings, the scarcest capacity a country has, these people who have been employed in the past and could be employed in the future. These people have been in employment. They are not the unemployables and they should be in employment in future, able to make a contribution to productive capacity. Any strain on capacity would help to improve investment in machinery and this we need.
The second argument against the introduction of quotas is that the quotas would take a long time to fill up. But they could be back-dated. They could be made operative from the beginning of the year and whatever has been imported during that period could be set against the quantity in a category. There is no unfairness about that. If an importer has imported so much more than he did two years ago, that would be something to set against what he was allocated.
I have considered with some care the main Board of Trade categories of consumer goods which could be strictly controlled, and I think that there are four. Obviously, one does not wish in any way to control the import of raw materials, or even many semi-manufactures, but things like motorcars, refrigerators, domestic washing machines and a whole host of other articles have been imported in massively increased quantities in the past two years. So large has been the increase over the past two years that we could set a quota on the year 1966, or 1967, for these categories, or portions of them, and take that as the base year, so that what was imported in that year would be the quota for this. We could save about £400 million of imports and that would be directly reflected in the balance of payments.
The fourth argument is the balance of advantage argument. Everybody says that we must not introduce import quotas or take any strange action now because the future is so murky that it is already hard to see where we are now and even harder to see where we shall be in the months ahead. For years we have done nothing because for years we have been in the situation that in economic terms the present is always murky and the future murkier still. That is an argument for never taking action.
But there is a certain balance of advantage. It is that if one introduces import quotas and by good fortune the balance of payments improves and everything goes well, then quotas may be dismantled. But if import quotas were not introduced and were subsequently shown to have been needed, a very great loss would be sustained because of the capacity and the production which would have been lost.
The balance of advantage argument alone is one of the most important reasons for introducing import quotas at the earliest moment. The argument of retaliation has now been demoted from the overriding position which is used to occupy, a place of some importance. Those in authority, I understand, accept that the retaliatory argument is not the main argument and that there is not likely to be retaliation.
It is obvious to all of us, and it has always been obvious to anybody who


understood the matter properly, that nobody retaliates against a country in difficulty. There might be retaliation against a country which had a surplus and which was not behaving according to the rules but when a country is in difficulties and is allowed to take this action under G.A.T.T., the amount of retaliation is likely to be small. I understand that this is now accepted by the Treasury and I need not spend more time on it.

Mr. Roy Jenkins: indicated dissent.

Mr. Sheldon: I understood that that was the position. If I have misunderstood, I should be pleased to be corrected. I understand that the argument of retaliation is no longer regarded as the main argument against import quotas.

Mr. Charles Fletcher-Cooke: In the furtherance of his protectionism, the hon. Gentleman is assuming that the retaliation argument has been discounted. Would he quote a little more authority for that, because it is not accepted in the easy way he assumes?

Mr. Sheldon: I am going by statements made on the matter.

Mr. Fletcher-Cooke: By whom?

Mr. Sheldon: By my right hon. Friend. I may have misquoted him. If so, I should be pleased if he would take the opportunity to correct me.

Mr. Roy Jenkins: I am not aware of which statement my hon. Friend is referring to, but it is certainly the case; but I think there are other arguments against import quotas as well as the retaliation argument. This does not mean that the retaliation argument does not count.

Mr. Sheldon: I am grateful to my right hon. Friend for clarifying that. I noticed that there was a demotion, because in the previous debates the retaliatory argument has been among the most important arguments. Perhaps I had better deal with it briefly. The approach that I have on retaliation can be summed up in the situation whereby a country is allowed under G.A.T.T. to impose import quotas for eighteen months. We have not done this because the Board of Trade has an obsession with the liberalising of trade.
It always felt it was to the good of this country, and so it was in the 1930s, when

25 per cent. of trade was British. We naturally wanted liberalisation. Now Germany exports far more than we do. We are not the great exporting country we were. By comparison with our needs for imports the situation has changed fundamentally. It is a pity that the Board of Trade's attitude has not changed similiarly. As we are allowed to do this, all I can do is to make a subjective judgment, as any other hon. Member will. Faced with the appalling difficulties of our balance of payments and the situation under G.A.T.T., my own view is that retaliation is a minor matter.
Then there is the question of fringe buying. When the categories of goods under quota are stated the argument is that those not under quota, being on the fringe, will experience anticipatory buying. There is something in that but not very much. We know that this can happen now. Those who look at the situation do not really believe that the amount of anticipatory buying, particularly at high interest rates, is likely to be very much. The hon. Member for Edmonton (Mr. Albu) talked about consumer goods entering the country and said that if we were to make them it would not be very good for exports. He was forgetting that vast numbers of refrigerators and particularly cars and washing machines are entering the country. The greater sophistication of world trade has been largely due to the greater sophistication of consumer durables. If we can introduce import quotas we can, for the time being, make sure that we are able to obtain a positive balance of payments in a much easier way.
Most important is the fact that there is in all this a multiplying effect. If we save £400 million on imports through import quotas that does not mean that we run the economy at £400 million more, because that is the level of imports. There is a ratio of production to imports of about five to one. What we produce contains roughly one-fifth or one-sixth of imported articles. That means that the economy can be run several times the £400 million saved from imports.
This extra demand can be brought to bear in the economy, can produce the investment required, give us the production, if only for a limited time. It can get the economy off the ground in a way that no other proposal put before the


House can, in the limited time about which we are talking. The alternative is the long slog without any certainty or assurance as to how we will proceed.
I will not deal with the floating £ except to make one point, for the benefit of the hon. Member for Oswestry. The great disadvantage of the floating £ is that it would not float, because after the first two months the Government would have to manage it. They cannot opt out of big economic decisions. There would be a managed rather than a fixed £ and I do not take the difference between these to be very large.
It would introduce greater uncertainty into world trade, which has changed enormously since the inter-war years. Trade is not done today in single consignments, whereby one can buy foreign exchange on the forward market, in the same way as in the past. I do not see the floating £ as providing the answer. If we want a change, if we are trying desperately to find an alternative solution, import quotas will provide it, and it is a great pity that the Letter of Intent removes one of the most important opportunities available.

7.55 p.m.

Sir Gerald Nabarro: The hon. Member for—Oh! I am so sorry to think that I am driving the Chancellor from the Chamber. What a pity, because I had intended to refer to him in my first sentence. I will defer that until later in the hope that he will return.
The hon. Member for Stoke-on-Trent, Central (Mr. Cant) welcomed the Letter of Intent. I do exactly the opposite. This missive is highly unwelcome to me, for it shows that our country is wallowing in debt. What the hon. Gentleman said later was a little more acceptable to me, his diagnosis of the reason for the continuing deficit in our balance of payments over the years. This was because, he said:
Growth rates are going up too slowly.
There are four reasons for this and I propose to address myself to each of them shortly, because this is the nub of the matter. Here are the fundamental reasons for the deficits in our balance of payments, year after year, and the huge debts that we have run up in the last five years.
The first reason is the loss of working time caused by industrial disputes the second is the very low level of industrial investment; the third is the fact that—the grain of truth in what the hon. Member for Ashton-under-Lyne (Mr. Sheldon) said—our imports are a good deal too high and the fourth reason is that taxation is too heavy.
Dealing with industrial disputes first. The Chancellor has been a little less than candid and honest with the House. In his Budget Statement he was quite explicit as to the action and policy the Government proposed to take and it would be seen that the Letter of Intent contains no reference to it. The Chancellor said:
The Government have, therefore, decided to implement without delay, during the present Session, some of the more important provisions incorporated in the White Paper 'In Place of Strife'. My right hon. Friend the First Secretary will be intervening later in this debate to explain the provisions which the new legislation will embody."—[OFFICIAL REPORT, 15th April, 1969; Vol. 781, c. 1006.]
On 23rd June I was fortunate to be able to put a supplementary question to the Chancellor, in which I asked:
How does the Chancellor relate his repeated references to adhering to his Budget Statement with the fact that he has apparently overturned that part of his statement which said that he intended to implement, without delay, this Session, the principal provisions of the White Paper, In Place of Stife'?
MR. JENKINS: Because it has proved possible to get an arrangement with the T.U.C. which I believe will work."—[OFFICIAL REPORT, 23rd June, 1969; Vol. 785, c. 1006–1007.]
He is the only person who does believe that it will work.

Mr. David Marquand: Nonsense.

Sir G. Nabarro: If the hon. Gentleman had been engaged in industry as long as I have, he would know that indiscipline is rife. The number of days lost through industrial disputes is now running at a record high level. The official statistics—and I never come to the House less than fully armed with all the statistics—show that in the first four months of this year more days were lost through industrial disputes than in the whole of 1963, being the last full year of power of the last Tory Government. Therefore, pro rata, the loss of days due to industrial disputes, on the latest figures available, is running this


year at three times the rate in 1963. Will the T.U.C. remedy that by exhortation? Not on your life, Mr. Deputy Speaker.
My right hon. Friend the Leader of the Opposition, in his splendid television broadcast a few evenings ago—I could not have done better myself—[Interruplion.] I get the chance to appear on television much more frequently than the hon. Member for Gravesend (Mr. Murray), who is never seen on the "goggle box". One has only to look at his face to see the reason why. But I do not wish to digress. In his splendid broadcast, my right hon. Friend made it perfectly clear, I am thankful to say, that the Conservative Party will legislate immediately it has a Parliamentary majority, resting on a mandate at a General Election—the weakness of the Prime Minister today—for trade union reform, which is the only means of tackling the growing rash of unofficial disputes, strikes and stoppages in industry. That is the first cause of the lack of growth to which the hon. Member for Stoke-on-Trent, Central alluded.
The second matter of investment takes me back to the Chancellor of the Exchequer. He is a little less than candid with his fellow Members. I wrote down his words today on the subject of investment. He said, trying to pull the wool over my eyes:
I expect a good increase in private investment this year.
My right hon. Friend the Member for Enfield, West (Mr. Iain Macleod) referred to his doubts about private investment this year. He made quotations from 16th and 17th June. I go a little further forward and quote what the C.B.I. had to say on 19th June. The sources of information of the C.B.I. are at least as good as those of the Treasury. The Treasury generally relies on it for its information in this context. In its Press release of 19th June the C.B.I. said about investment:
General optimism has declined. Investment authorisations are expected to increase over the next year, but the plans seem to have been revised downwards and the replies may presage a downturn in investment next year.
That does not augur well for the bland confidence expressed by the Chancellor of the Exchequer that all is well with investment.
What the Chancellor of the Exchequer always fails to understand, for he is one of those characters who have never done a day's work in industry, trade or cornmerce—[Interruption.] I am aware that he was a director of a departmental store for a few months. I know all about that. But selling goods over the counter is not being engaged in industry. I know exactly what the P.P.S. was whispering to the Minister. I can lip-read perfectly from great distances.

Mr. Albert Murray: I hope that it was not unparliamentary.

Sir G. Nabarro: I am sure that everything that the hon. Gentleman says is unparliamentary.
As the hon. Member for Stoke-on-Trent, Central knows, a high level of investment rests on continuing confidence in future profits. Industry today, under the present Government, has little confidence in future profits. Too much is taken in taxation.
The hon. Member for Ashton-under Lyne made his speech and went awa, so that he could not hear my allusion to what he said about imports. He exaggerated by suggesting that we could have some vast abracadabra of import controls to save £400 million worth of imports. That is not practicable. What we could have, with a little imagination by the Treasury and the President of the Board of Trade, is a successful application of the legislative powers which already exist to regulate unnecessary imports. I reduce this to a simple constituency case which will appeal to every hon. Member here.
Every hon. Gentleman, every occupant of the Strangers' Gallery and every person in the Press Gallery listening to me consumes fruit and vegetables and has flowers in the home. They are all supporters of horticulture. I have in my constituency the Vale of Evesham, which, in terms of production, is probably the richest horticultural producing area in Britain. The horticultural growers have never had a worse time than they have had in the last three or four years. They all tell me the same story: that as each crop of each product comes to be marketed they find the market swamped with foreign produce. The Board of Trade has power to exclude that foreign produce during the marketing period of the British crops but it is rarely excluded.
This year—and I declare my interest—I am Vice-President of the Vale of Evesham Asparagus Growers Association.

Mr. Murray: Raspberries.

Sir G. Nabarro: I did not say "raspberries". The hon. Gentleman misheard me. I referred to the Vale of Evesham Asparagus Growers Association. The hon. Member for Gravesend is a poor, poor chap if he does not like asparagus. I will bring him a round-of-gras from the Vale of Evesham.

Mr. Murray: Give me some good tips.

Sir G. Nabarro: A round-of-gras is choice asparagus.
At the very time that the crop in the Vale of Evesham was ready for marketing, the British market was flooded with Californian asparagus, probably subsidised, bought with dollars and flown in to this country. Is it reasonable that our exporters should burst their boilers to sell Jaguar motor cars, executive aircraft, electronic equipment, turbo-alternators and highly sophisticated engineering products to the United States to earn dollars which we then dissipate by importing asparagus from California which we can grow for ourselves far more successfully in the Vale of Evesham?

Mr. Richard Wainwright: The hon. Gentleman has made a notable catalogue of British exports to America. Is it outside his comprehension that the successful growers of Californian asparagus may like to be set up with two or three fine worsted suits from this country?

Sir G. Nabarro: I have no doubt that the hon. Gentleman is admiring my Savile Row suiting and that that prompted him to make that observation. I am not complaining about American asparagus coming to this country when our asparagus is not being marketed. All that I ask the Board of Trade to do is to keep the American asparagus off our market while our crops are marketed. The same with radishes and the same with lettuces and the same with the whole gamut of horticultural products.

Mr. Murray: This is an interesting argument, but how does that save money

if we just pick a different time of year to have asparagus? Surely that is not Vale of saving dollars?

Sir G. Nabarro: This is not an argument it is a matter of established fact, that we, 20 years ago, legislated to have close seasons when we did not import foreign produce, and what I am complaining about is the Board of Trade's policy, because it results in foreign produce, which is unnecessary, coming in, and results in our own crops being wasted as well. I say that it would be a sensible application of import restriction to exclude at least £250 million of foreign food and produce which we could equally well grow in this country, and at lower prices than we pay by buying abroad, and greatly to the benefit of our balance of payments. At least, thus far the hon. Member for Ashton-under-Lyne is correct.
The fourth and last allusion which I have is, of course, in connection with taxation. The Letter of Intent, in paragraph 7, actually names the increase in taxation over three Budgets. It does not mention the dates, but it mentions the figure of £1,500 million increase in taxation during the last year, that is, over three Budgets, 19th March, 1968, 22nd November, 1968, and 15th April, 1969—an aggregate increase in taxation in the three Budgets of £1,500 million. That is an astronomical figure.
The reason why our economy is not growing in this country as it should be growing—the major reason—is the penal effect of direct taxation. Nobody works hard enough in this country because the incentives to work hard are not there. Everybody who can fiddle on tax account fiddles. [An HON. MEMBER: "No"] Yes—and at every level, from the workman up to the boardroom, and these are well-known facts. Thus, again, only the Conservative policy of reduction of direct taxation and the restoration of incentives to work harder for the creation of new wealth, by corporations as by individuals, is likely to make any dynamic contribution to solving the problem of the lack of growth to which the hon. Member for Stoke-on-Trent, Central was alluding.
I conclude. I am being very quick—17 minutes so far compared with the 32 taken by the hon. Member for Ashton-under-Lyne.

Mr. Murray: It sounds longer.

Sir G. Nabarro: Yes, but the hon. Gentleman is listening with a sad lack of attention to words of wisdom. He should have some regard to them during the short remaining period of his stay in this House. We hope to have a Conservative sitting for Gravesend after the next General Election.
I do not welcome this Letter of Intent. I repeat, it shows our country to be wallowing in foreign debt, the result of Socialist improvidence during five years since 1964. If one needs any example of calculated failure on the part of Socialist Ministers to administer their affairs with efficiency and acumen one has only to look at the mistake made in the export figures. The Chancellor and the President of the Board of Trade combined could not do their sums, could not add up the export figures correctly, and have brought out of the cupboard a few hundred million pounds which, they allege, is an understatement of our export performance. I hope they are right. I shall vote gladly tonight with my party in this House, because I believe that this Letter of Intent is bad, and that no Letters of Intent will be necessary under a future Conservative Government following policies which will restore national solvency.

8.14 p.m.

Mr. Joel Barnett: If I could refer mainly to the Letter of Intent, I certainly do not believe that there is any need to have any obsession about the borrowing of money. There is too much of that obsession, both in this House and amongst others outside, about the borrowing of money. Certainly the British people do not have such an obsession, as is shown by the most recent figures I have been able to obtain from the Library. At 31st December, 1967, total borrowing in Britain is £10,199·5 million and even this does not cover, apparently, all the funds which were borrowed because some details are not available to the research staff of the Library. This makes an average of £185·2 of debt per head in this country. Indeed, it is of course more in actual terms, because many people do not borrow.
What concerns me about Letters of Intent, and this one in particular, is not that we have to borrow money, but what the terms are on which we borrow and what those terms will mean by way of

policy, whether that policy is the policy of the Chancellor, as espoused in the Budget, or whether it is dictated by the I.M.F.
In the Letter of Intent we have a new term, D.C.E., domestic credit expansion, and the hon. Gentleman the Member for Oswestry (Mr. Biffen), in another refreshing speech such as we have from him in these debates, said, like my hon. Friend the Member for Stoke-on-Trent, Central (Mr. Cant), that that meant they were Friedmanite sceptics. I must say that that was not what I took to be their view of that policy. They seemed to me to be in love with the policy—at least, my hon. Friend did.

Mr. Biffen: I am sure that the hon. Member for Stoke-on-Trent, Central (Mr. Cant) can answer for himself, but surely the point is this, that the consequences of a Friedmanite policy are now being vested with infinitely more significance by politicians than Friedman would himself vest in them, and in this sense I call myself a convinced Friedmanite sceptic. I do not want to go into this policy, but there is always the danger that politicians will give effect to it.

Mr. Barnett: What worries me is precisely the consequences of the Friedmanite policy, because it is precisely the consequences that I, certainly, do not know. Indeed, listening to my hon. Friend today, who, in this House, is probably recognised as being one of the major exponents of the Chicago school, I am still left with the feeling that even he does not know what the consequences of this newly found monetary policy will be.
Indeed, he is quite right, that, of course, this is not something new. We have always had domestic credit expansion. That has happened, but we did not know we had it, apparently. What my hon. Friend says is quite right: it simply came out in the wash. So it is not something which suddenly happened. We had domestic credit expansion both in public and private borrowing. It is just that we did not have to specify the extent of control, and this is what we are now, apparently, going to have, and the consequences of it are something which nobody yet can predict, and despite the fact that the Chancellor of the Exchequer today spelled out in more exact terms what his definition of it was,


we still do not know just what the consequences of this newly found control of the monetary supply will be. One has only to look at the great variety of figures which are available in various Government documents to realise how confusing the whole situation is.

Mr. Terence L. Higgins: Would the hon. Gentleman not agree that much of this confusion arises from the Treasury's adoption of the expression C.D.E., because it is in fact a credit-based expansion rather than credit expansion, which, of course, has a multiplying effect?

Mr. Barnett: I do not entirely accept that that is the form of words that creates confusion. I think that the different figures in the various documents are more likely to cause confusion, and the confusion is added to by the Government using different year ends. All too often we find the calendar year used in one sentence, and the financial year used in another. This is terribly confusing, and I wish the Treasury would once and for all decide that if they intend to use the financial year, they will use it in all references, and will not confuse it with the calendar year if to do so happens to be more advantageous at a particular moment of time.
One has only to consider some of the figures that are available to illustrate what I have said. Paragraph 9 of the Letter of Intent, what might be called the major paragraph, says:
The Government's objectives and policies imply a domestic credit expansion for the private and public sectors in the year ending 31st March 1970 of not more than £400 million, compared with some £1,225 million in 1968–69.
Has the Chancellor calculated what sort of effect that will have? Has he calculated how much of this is public, and how much of it is private reduction in expansion, borrowing and whether the word "imply" means something different. We know from Peter Jay in today's Times Business News that the form of words is clearly very important. What does the word "imply" mean? Is it a part of definite Government policy, or is it only a broad aim?
One can look at other figures which have been given by Government spokesmen. In the Budget on 15th April we

were given a number of other figures. Page 18 of the Financial Statement gave yet more figures for public borrowings. We have figures which seem to show that there is to be a change in public borrowing between last year and this of a negative amount of £646 million.
Paragraph 7 of the Letter of Intent gives yet other figures. It says:
The Central Government borrowed £1,331 million net in 1967–68 … In 1969–70 the Central Government's accounts—again excluding import deposits—are intended to be in surplus by at least by £850 million …
In the Budget the Chancellor gave us a figure of £807 million. Almost daily we are given a whole variety of different figures.
What I am not clear about—and I hope that my right hon. Friend will be able to deal with this when he replies to the debate—is whether public borrowing is to be reduced by about £800 million, which is the figure used by my right hon. Friend today. If it is, does it mean that private borrowing will be allowed to increase by £1,200 million, to get a net borrowing of £400 million referred to in the Letter of Intent? If that is so, is it the understanding of both my right Friend and the I.M.F. that private borrowing is to be allowed to expand this year by about £1,200 million?
The figures which we have been given give rise to great confusion about what the new found control of domestic credit expansion will do, and where exactly it will fall. We do not know on which aspect of the economy it is to fall, or whether it is to be spread across the board willy-nilly, without any kind of control. Are the Government going to say that they will allow private borrowing to increase by £1,200 million, leaving it entirely to chance how it falls, and where it falls, or is there to be any tighter control over it?
In Committee on the Finance Bill I once accused my hon. Friend the Member for Stoke-on-Trent of being the hon. Member for Chicago. I must withdraw that. My hon. Friend said that this control on the monetary supply could be effective for anything from three months to 18 months. Does the Chancellor accept that? Is that school of thought one which the Chancellor accepts? If he does, what will happen when he comes to borrow the next tranche of 500 million


dollars? What happens if he finds that the effect has been rather greater than he originally had in mind?
What sort of effect does my right hon. Friend expect this to have on growth investment and employment? My right hon. Friend made some very optimistic remarks today—which I hope are correct—about what he thought was likely to happen to investment during the rest of the year. With interest rates as they are, with the monetary squeeze on private companies being what it is, there is a general fear among people to whom I have spoken about borrowing large sums of money medium term or even long term. What one of my hon. Friends referred to as a not very high rate of interest is extremely high to people who have to invest to make a return above 10 per cent. The people to whom I have spoken leave me with the impression that manufacturing investment is nothing like as buoyant as the Chancellor seemed to indicate, but I hope that he is right. What worries me is that we are using this policy, and that we have specified the extent to which we are using it, without knowing the effect it will have. We have said that this is the extent to which we intend to go or at least that is my impression.
The Chancellor will probably say that it is all very well to say that, but what alternatives are open to us? We cannot increase taxation, because we know that this does not have the economic effect that at one time we thought various increases in taxation would have. It is true that, with or without the I.M.F., our choices are limited. Some of the alternatives cannot be adopted unilaterally. There has been talk about the realignment of currency, but we cannot do this unilaterally. There has been talk about an increase in world liquidity and the price of gold. A bigger injection into world liquidity by S.D.R.s would be of great value to this country, but we cannot do this unilaterally, either. What happens here will depend largely on the United States, and probably on the West Germans.
There has been some discussion today about floating rates and crawling pegs. As I do not want to take up too much time, I shall not refer to them again, but they are no more a panacea than is the new monetary supply theory, although

that was the impression given by my hon. Friend.
Listening to some of the arguments in favour of this new-found theory, one would assume that there has never been any other method of getting the sort of deflation that we are likely to get from the use of monetary supply. I would have thought we now know it's not difficult to get deflation. We have had enough in recent years. All that we have done with the monetary supply is to find a new weapon to do it.
I want to revert to the various alternatives. I agree that many of those put forward in respect of the Government's economic strategy—alternatives such as import quotas, which I am not sold on—are open to the accusation that they have a considerable degree of risk. On the other hand, it is not unfair to say that the Chancellor's policy is not without a degree of risk; indeed, if my right hon. Friend's strategy had not this degree of risk but the certainty that it will reduce investment and employment, it would be unacceptable to me. I would rather have any one, or a combination of the alternatives. That would be a risk. But if it became clear that what the Chancellor is pursuing is the certainty of a disastrous effect on employment and investment, I would prefer a risk to that certainty.
I turn to another alternative which is open to the Chancellor. In the past we have financed capital outflow by restricting growth at home. We have had economic "stop-go's" for years in order to improve the current account balance on the balance of payments while, on the other hand, we have allowed enormous funds to go out of the country by way of capital outflow. It is time that this process was reversed.
There should now be a much firmer control over capital outflow, designed to achieve a net inflow of capital. That would amount to new net borrowing, and that would be preferable to allowing capital to flow out at the level it has been flowing out. If we pursue the sort of policy that I am advocating in respect of our balance of payments we could relax the squeeze sufficiently to get the sort of investment growth that we vitally need. To do this I would bring forward the payment of investment grants. This would mean putting funds specifically into companies which are investment-conscious.


I would hope that this is one of the ways in which the Chancellor will pursue the goal of increased investment.
It really is crazy to pursue a tight, rigid monetary policy in order to get a current account surplus whilst we dissipate it on capital outflow. It may be that I am doing my right hon. Friend an injustice. Perhaps he does not intend to pursue the D.C.F. quite so ruthlessly. Like the rest of us, he does not know the extent to which the control of monetary supply will work. That is the real worry.
Paragraph 1 of the Letter of Intent—the vital paragraph—reads:
Before making a request for a further purchase under the standby arrangement, the Government will consult with the Fund"—
then comes the difference in the wording of this Letter of Intent, as compared with the last one, when we had only the word "consult". This time we have
and reach understanding regarding the circumstances in which such purchases may be made.
I do not know to what extent the Chancellor would have to tighten the squeeze, or allow the squeeze to be tightened, to reach an understanding, but if he had to allow the squeeze to be so tight as to affect investment, growth and employment I would much prefer his saying to the I.M.F., "You can keep your other 500 million dollars."
After all it is only approximately one year's error we have now found in the balance of trade. It is not worth pursuing the squeeze to such an extent for that amount of money. Therefore, if it comes to the crunch, and the only way in which he can get the additional 500 million dollars is by allowing this new D.C.E. to be used in a way that will squeeze the economy even tighter in the straitjacket, I ask my right hon. Friend not to bother raising that additional 500 million dollars. Another economic squeeze would not just be bad. It would not just cause economic misery at home. If we had a further squeeze, if we cut investment once again as it has been cut for years, this would ensure that when we need to grow again in the future capacity would not be there, and rather than that I would prefer any of the other alternatives.

8.35 p.m.

Mr. Richard Wainwright: I join the hon. Member for Heywood and Royton (Mr. Barnett) in urging that before the debate concludes we should hear something from the Government on the protection of industrial investment from what they must admit—and I do not altogether quarrel with this—is a new and untried method of dealing with our balance of payments problems.
In our adopting a new tack it may be that, particularly at a time of international uncertainty, some things in this country must suffer. But one thing which must not be allowed to suffer is the level of industrial investment. It is not a question of complacently comparing our level with that of some of our competitors. We have already fallen seriously behind. Any further cut-back would have very serious repercussions.
Ministers on the Treasury Bench have been very diligent in their attendance, so as they prepare for the wind-up of the debate they must be seized of the fact that from both sides of the House, in a perfectly sincere, genuine and reasonable way, there has been expressed a very strong concern to have explained and if possible defended, but particularly explained, paragraphs 8 and 9 of the Letter of Intent, which are those dealing with the money supply and domestic credit. I hope that in the Government's reply too much attention will not be paid to the early, purely party political criticisms of the circumstances of the Letter of Intent, questions of just whose finger was on the pen and why the Financial Secretary did not wear a beard when he made his sudden journey to Washington are beside the point. What both sides of the House want to know is what is meant in plain English by the sort of sign language in paragraphs 8 and 9, and they want the answers to certain questions which have been put. There are one or two that I should like to add.
My only concern at the fact that the letter was obviously carefully considered by the I.M.F. before it was finally written and signed is that the language of paragraphs 8 and 9 is no doubt quite clear to the I.M.F., and its interpretation is understood by the Government, but that it is not clear to the people of this country. New phrases are used to which


we have not become accustomed, and plainly they are used in highly particular senses. There must be very few people outside Government circumstances in this country, if any, who could put their hands on their hearts and say that they know exactly what the Government mean—not what they themselves mean and not what an academic expert in Cambridge or wherever means, but what the Government mean—when they talk about domestic credit expansion. I hope that we shall have a clearer statement on this than we have had so far.
As to the circumstances of the Letter of Intent, it seems to me quite beside the point to be worried about the source of the advice. The state of the British economy is a matter of great international importance and we should not be sensitive to international advice, even if it is pressed upon us, if it contains sound sense and possibly the fruit of useful experience in other industrial countries. However, the Government have still a bit more work to do in making quite sure that recipes which have been developed in the different industrial society and financial community of the United States are being correctly translated into our own circumstances. They have not so far managed to convince me that the American theories have been carefully considered in the United Kingdom context. This may be so, but it has not yet been brought out. I am sure that the Government would not expect us to agree that American prescription can simply be brought here and swallowed whole without any re-compounding.
It is important to consider paragraphs 8 and 9 of the Letter. In paragraph 8 the Chancellor blandly says:
… the increase in credit in the economy was too high, and the Government intends not to permit credit to be supplied to the economy on anything like this scale in 1969/70.
The right hon. Gentleman has not explained to what extent it was too high, why it was too high and why it was allowed to become too high. We are meant to be deeply impressed by the honesty of his confession, to accept it and to call it a closed book. But as we have at least another year to endure from the same financial managers, they owe us an explanation of why they suddenly regard their policy as having been so unfruitful.
After all, we were told in 1968 Budget speech by the present Chancellor that the

immediate outlook offered no scope for a relaxation of credit restraint. It is odd, as that was his announced policy in 1968, that he should now be telling the I.M.F. that the out-turn was far too high and that nothing like that will be allowed to happen in the immediate future. The least we need is a further explanation.
The Government are virtually committed—they use the word "implied"—to a maximum of £400 million domestic credit expansion in 1969–70, but we have had no explanation of this figure. Why the figure £400 million and what exactly is it meant to cover? During the last few months a large number of companies which have been seriously deprived of their usual banking facilities have learned striking lessons in making extraordinary little credit and other money go a long way indeed.
How far are the Government, in trying to measure domestic credit expansion, taking account of the new experience which business is rapidly gaining in making a very small credit base go further than ever before? We have heard nothing from the Government on this score, although there is no doubt that there has been a transformation in business in the last few months in the economical use of credit by go-ahead companies which have been determined not to have their forward thrust checked simply by an attitude which the banks have been forced to adopt.
Between paragraphs 8 and 9, so to speak, is a gap of three important months. Paragraph 8 lifts the veil a little on what happened up to 31st December, 1968, but paragraph 9 takes up the tale only from 1st April, 1969. There are rumours—I know nothing more than this—that during the first three months of this year, domestic credit expansion was very high indeed in relation to the g.n.p. Whether or not this was so I have no means of knowing, but the Government owe it to the House to fill in the three months' gap in the story between paragraphs 8 and 9.
The country has been committed by the Letter of Intent to an economic destination which has been pinpointed more precisely than ever before to an outside body. At the same time, however, it has been committed to use a path relatively untrodden, unknown and largely unexplained.
The great test of this matter is whether in this debate and over the next few weeks the Government can make it very much plainer than they so far have done to the country, to its industrialists and those engaged in business exactly what is the new strategy which they have announced only in sign language in the Letter of Intent to the I.M.F.

8.45 p.m.

Mr. A. H. Macdonald: Most speakers have ranged pretty widely in canvassing their alternative panaceas. I do not propose to do that, because in the main I am in agreement with the Government's policy and have no complaint to make of the Letter of Intent. I want to concentrate my remarks mainly on a particular application of the policy which I think we need to consider. First, however, I wish to make four brief comments.
First, the Chancellor of the Exchequer protested that there had been no change in his policy and that the policy outlined in the Letter of Intent would have been followed even if he had not succeeded in negotiating the standby agreement. It seems to me extraordinary for him to say that if he had not succeeded in negotiating these facilities his policy would have been the same. I do not see why he should be ashamed to say that there has been a change and a difference. To me, that there has been a difference is a matter for congratulation. I entirely endorse the policy now being followed by my right hon. Friend.
Second, when discussing D.C.E., my right hon. Friend said that, as he sees it, there will be a margin for expansion in private consumer credit. Yet a few minutes later he said that it would be necessary to keep a tight rein on home demand for fear of an increase in imports. I find those two statements rather difficult to reconcile. I shall return later to the question of home demand.
Third, I see no cause for concern or criticism in the fact that the I.M.F. takes an interest in our affairs. As it has lent us some money, it is naturally interested. That is not surprising. What is surprising to me is the moderate degree of interest it shows. I know that if I were Mr. Schweitzer I would take a far closer interest in this country's economy than the I.M.F. appears to do. Our negotiators

deserve some congratulation on getting terms so mild and so bland.
Fourth, my right hon. Friend may have shifted his emphasis a little on the question of money supply, and he has nothing to be ashamed about in doing so. He said in his Budget speech that he attached the greatest importance to it, but I felt that "greatest importance" was rather like the "importance" that the people of "Erewhon" attached to musical banks. I feel now that the importance that my right hon. Friend attaches to it is real.
I must express, with the hon. Member for Oswestry (Mr. Biffen), the hope that we are not going nap on the question of money supply. It is wise to have this weapon at our disposal. But I am not too sure exactly how we quantify the effect of administering the policy, or how we recognise its effect when we see it. Therefore, while I support the adoption of the policy, I hope that we are not placing reliance on it to the exclusion of everything else.
Paragraphs 8 and 9 of the Letter of Intent speak of restraint on credit. I entirely agree with the thesis that some measure of control and restraint is necessary, but it seems to me that the weapons at the Government's disposal are selective, and will not fully succeed in an exercise which I believe to be necessary. There are some aspects, particularly of consumer credit, which escape the controls which the Government have at their disposal. For instance, if everyone took out Barclaycards and immediately started drawing on them, there would be an enormous expansion of credit. I am not clear exactly what facilities the Government have for putting a stop to anything like that.
On consumer credit, in the debate on the Consolidated Fund in March I discussed the question of hire-purchase controls, making a number of complaints and in particular complaining that we exercise control on hire-purchase but that provident check trading and other forms of facility escape this measure of restraint. The Minister of State, Board of Trade, in reply, admitted that the facilities at the Government's disposal were defective. He went so far as to say that this was simply because they had not been able to think of anything


better. I will not quote his remarks, but they are to be found in column 1582 of HANSARD for 25th March.
If this gap in the facilities available to the Government is admitted two things follow. Even the Board of Trade admitted that the impact of hire-purchase controls is quite moderate and wears off in time. Those controls were imposed seven months ago. We have the Letter of Intent just at the time when they may be expected to be wearing off. Are we to expect that further controls will be imposed? Secondly, if we admit that there is this gap, the Minister of State has admitted that we must look to the Crowther Committee for new ideas for controlling consumer credit. The Government are waiting for Crowther. The people waiting for Godot found that Godot never turned up. What happens if the Crowther Committee does not come forward with some new idea for controlling consumer credit?
This is important because in paragraphs 8 and 9 of the Letter of Intent the Government quite expressly and specifically say that they will take measures to control private consumer credit. If Crowther does not tell them how to do so, I am not sure how they will be able to fulfil that promise. Hire-purchase transactions, which are caught by the measures at the disposal of the Government, amount to £1,020 million a year, an amount which is falling; whereas the amount involved in cheque trading, which I suspect is not caught, is £200 million a year. It is a significant chunk and that is rising. Cheque trading needs to be considered because this is the creation of credit. It could be argued that it is the creation of money out of nothing. When a cheque trading company issues its cheque to the customer and the customer goes to a shop and buys an article with the cheque, it is certainly the supply of credit and in my opinion it is the supply of money. He offers the retailer something which he is willing to accept in payment. His purchasing power is increased. I see no statutory effective Government limit to an enormous expansion in this range of domestic credit. If paragraphs 8 and 9 are to be carried out in full, we need to consider very seriously what alternative facilities should be available to the Government to carry out this policy.
I cannot go on longer because I have undertaken to end my speech in time to allow some other hon. Member to take part in the debate. I hope the Government will give serious consideration to what I see to be a gap in a policy which I otherwise entirely support.

8.54 p.m.

Mr. John Smith: I have been receiving letters of intent for years from the customers of the bank in which I work. I do not believe that any of our customers thought they had capitulated when they asked for an overdraft and got it. Further, I do not think that the word "capitulation" is very flattering to the I.M.F. The men of the I.M.F. are not bent on enslaving us. They are international public servants bent on advancing the prosperity of the world. In fact, when they come here—I welcome their visits—and we see their photographs in the newspapers, they turn out to be not gnomes but youngish, rather engaging men in tweed hats.
Therefore, I personally have no quarrel with the Letter of Intent as such, though I comment on two aspects of it. On the question of the £400 million limit to domestic credit expansion, I have three points to make about domestic credit. First, when the clearing banks find that they cannot get underneath their ceilings, or whatever it is that one tries to do to a ceiling, I hope that the Government will not imagine that this is due to wickedness on the part of the banks. Banks have given their customers limits, which in some cases are very old. It is only recently that banks have added up the total of their limits. In past times banks knew from experience the proportion of limits which would be drawn and were happy with a total of limits greatly in excess of their capacity to lend. The banks have entered into obligations to their customers which cannot be overridden by exhortations from the Government.
Secondly, one of the reasons why it is difficult for banks to control their lending is that bank borrowing is far too cheap. It may not feel cheap, but it is far too cheap, in view of the ease of the procedure, if credit is granted, and in view of the contortions which it is necessary to go through and the rates which


it is necessary to pay if credit is to be obtained in any other way.
Thirdly, I hope that the Government, by seeking to control the credit which banks are able to offer, will not force borrowers away from the banks. There are already very clear indications that this is happening, as indeed it must happen, but it is a most unhealthy development, because it means that people are obtaining credit in very much more difficult and more expensive ways, and that we are not making use of one of the prime inventions of Britain, which is the banking system. Also—this must be attractive to the Government—it makes the control of credit in the future much harder.
I turn briefly to the question of the surplus of £300 million. Achieving a surplus of £300 million does not necessarily mean that our troubles are over. Simply paying off an overdraft does not necessarily mean that a man is living within his income. It may merely mean that he has sold some of his assets. I am convinced that if we are to achieve a surplus of £300 million, as I dearly hope we shall, it will be only at the cost of selling some of our assets.
Which assets are we to sell? I mention this question particularly because there is a Motion on the Order Paper supported by a large number of wrongheaded hon. Members which urges the Government once again to realise our portfolio of dollar investments. I have three points on this. First, if we are ever to do this undesirable thing, this moment of all moments is the wrong moment to do it, because we shall get very much less for our investments than we would at almost any other time.
Second, it so happens that we have a talent here in this country for making money out of investment in dollars. Perhaps distance lends judgment to our view and, just as some people in this country think that investment in London is best conducted from Edinburgh or even Dundee, perhaps investment in dollars is better conducted from London. But the fact is that we have a talent and a delicate machine here for dealing with investments in dollars which produces a great and growing return in invisible earnings for this country.
Third, we are in the position of a spendthrift who owns and lives in a freehold house. One's advice to such a man would always be, "Whatever you do, whatever your straits, do not sell your freehold house. So long as you have that, you have something. If you sell it, all will soon be gone and you will have nothing". That applies to this prime investment of ours, namely, our dollar portfolio.
If we are to sell assets, which, as I say, I think we shall be obliged to do, let us continue the process by which Americans buy whole businesses in this country, businesses such as the Pergamon Press. This is not a matter for national shame. The ownership of certain English businesses by foreigners is just as good for this country as, in the past, the arrival of certain individual foreigners here has been, and it produces a valuable crossfertilisation of ideas for industry.
I do not, therefore, have much objection to the Letter as such, even though in places it seems to have been translated from the original American. But what I do object to, and what is deplorable, is that the Letter should have had to be written at all. We are to draw foreign exchange. What are the rare and refreshing currencies which we are to draw? Besides dollars, they are Argentine pesos, Italian lire, Australian currency, Japanese yen and Mexican pesos.
We are borrowing currencies of countries which, until lately, used to borrow from us and which, for generations, regarded London as the centre of the capital market of the world. Why did they regard us as the centre of the capital market of the world?—because we were prosperous. Why were we prosperous?—because Governments did not then sneer at those engaged in industry, commerce and trade. They did not sneer at children of the Scottish manse who made fortunes for themselves and their country in distant, uncomfortable climes. They did not sneer at people who sought to provide for their children.
Our economic future depends on commerce and trade. It depends on the enthusiasm and enterprise of business people here. But it depends- also on the opinion of the traders and market places of the world. Our holdings of foreign currency—which we now lack—are


largely their money. With their money deposited here we could pay back in a short time the money which we are now having to borrow from the I.M.F. But they will keep their money where they think it is safe, and now less than ever are they influenced by interest rates. They will not keep it in a country where business people like themselves are hounded. They will keep it in a country which believes in capitalism.
Investors will always invest in the countries which believe in capitalism, no matter what temporary misfortunes those countries are passing through. The present Government do not believe in capitalism. It does not matter whether individually they are reds or pinks or parlour pinks, they cannot by definition solve the problem. Therefore, if the Government really wish to save our economy they should not be applying to Mr. Schweitzer for a loan. They should be applying to the Queen for a Dissolution.

9.5 p.m.

Sir Keith Joseph: My hon. Friend the Member for Cities of London and Westminster (Mr. John Smith) identified precisely the main issue, which is, as it always has been through the present Government's life, the issue of international confidence in this country.
Many of us are apt to say that our fathers' generation was slow to heed the teaching of Keynes. With a few notable exceptions—the roll-call reads rather oddly now, for it has to include Lloyd George. Harold Macmillan and Oswald Mosley—both parties failed to heed the great man's lessons. I hope that it will not be said of us that we have been slow in heeding the teaching of the man who has dominated this debate—Milton Friedman. There was an incident about a decade ago when my noble Friend Lord Thorneycroft seized part of the lesson that has been taught from Chicago, and steadily since then my right hon. and hon. Friends and some hon. Members opposite have been hammering away at different parts of the money supply front—the level of demand, the borrowing requirement, and public expenditure, all very proper targets under both Governments, but superlatively more proper targets under the present Government.
Some of my right hon. and hon. Friends have absorbed the teaching of Friedman and identified the force lying

behind all those things, namely, money supply. I would particularly pay tribute to my right hon. Friend the Member for Thirsk and Malton (Mr. Turton), who has led a study group which has published over the past few years a series of pieces of research which have pointed the finger yet again at money supply. I think that he entered into a long correspondence with the present Prime Minister in which the Prime Minister firmly controverted this central theme. We now know from the Prime Minister's Chancellor of the Exchequer what the outcome is.
If one had to choose a single person to whom this Letter of Intent and today's debate would have brought joy, one must pick on the late, much lamented Harold Wincott, who Tuesday after Tuesday over a long and highly respected journalistic life identified the borrowing requirement, the level of demand, the nationalised industries, and the money supply as the basic sources of infection of this country.
Having said that, I must completely agree with my right hon. Friend the Member for Enfield, West (Mr. Iain Macleod), that though there is great persuasiveness in the arguments of Professor Friedman, we in this country know nothing about the potential effects on our special conditions. We are not like America. We share with America the characteristic of providing a great international trading currency. But, unlike America, we are in an open and exposed economy with a far higher proportion of trade being international. Alas, unlike America, we also have a very large public sector.
Clearly, the Government have committed the country to the full imposition of a dogma of whose implications for our life no one yet can be sure, and therefore we must be cautious in predicting what is going to happen. Plainly, the domestic credit expansion yardstick is a potent new instrument, though only one potent instrument in the armoury which any Government will consider in future. But there is no doubt that this instrument is being used by the Government for the single purpose of squeeze and deflation and we as a country face a painful autumn and winter. We on this side of the House do not deny that the series of blunders which the Government have imposed on the country may


have forced them at last to adopt part of a policy which may be therapeutic, but no one can yet be sure that the damage will not exceed the benefit. A number of hon. Members have referred in particular to the danger to the level of investment. Certainly it would be tragic if the level of investment were to suffer, but I agree with the hon. Member for Stoke-on-Trent, Central (Mr. Cant) who said that the level of investment is not the only index that matters. There is still a great deal of existing investment not fully used. We need the better use of existing investment as well as new investment.
We on this side deplore the policies and misjudgments that have led to the Letter of Intent. I now put to the Financial Secretary a few of the questions which have emerged from the debate and one or two others. First, will he meet the point made by my right hon. Friend the Member for Enfield, West about the omission from the Letter, which is dated 22nd May, of any reference to industrial relations? At that time the Government were totally committed to the reform of industrial relations by legislation. The Chancellor has told us that the letter spells out no more than was his policy at, presumably, that date. How comes it, then, that there is no reference in it to industrial relations legislation?
Secondly, I take up a point made by my hon. Friend the Member for Oswestry (Mr. Biffen). Why does the Letter proclaim the Government's intention to continue to control bank and other analogous credit? After all, the Government have only been forced to sit on the lid of credit because they were not turning off the steam at the main. Now, under the new policy, the Chancellor intends to reduce the money supply, or rather to reduce the rate of expansion of the money supply and thus presumably to turn down the steam. We accept that there is a lag between the two operations, but a few months after domestic credit expansion has decelerated surely it should be possible to cease to control the suppliers of credit in detail in this country?
My right hon. Friend the Member for Stafford and Stone (Mr. Hugh Fraser) put a pertinent question. He said that despite the apparent openness of page 15 of the Financial Statement of the Budget

—which we welcomed at the time—we do not even now know the full level of indebtedness of the country. He asked, and I repeat, that the Financial Secretary should tell us what additional debt over and above that published on page 15 of the Financial Statement the country now owes. Let not the right hon. Gentleman evade this question, because we on this side when in Government scrupulously published the full indebtedness we incurred abroad and we look to him for an answer to match our frankness.

The Secretary of State for the Home Department (Mr. James Callaghan): indicated dissent.

Sir K. Joseph: The Home Secretary suggests that we did not. I was not in a relevant office at the time, but my understanding is that we published our short-term borrowings.
I hope that the Financial Secretary will answer the question of the hon. Member for Colne Valley (Mr. Richard Wainwright), who asked for a report on the D.C.E. experience of the first quarter of this year, the gap between paragraphs 8 and 9 of the Letter of Intent.
My right hon. Friend the Member for Enfield, West exposed, I thought rather brutally, but most effectively, the disingenuousness of the Chancellor, something we do not expect from him, in telling the House about unemployment. In short, the Chancellor treated in a way which he well knew was misleading an effective rise in the seasonally adjusted unemployment for June as a fall in unemployment.

Mr. Roy Jenkins: The right hon. Gentleman is quite wrong. What in fact I said was that seasonally adjusted the figure had risen in the past few months, but that it had risen in these few months for the past three years and had then fallen sharply in subsequent months, which casts a little doubt on whether we have the seasonal adjustment right for this time of the year.

Mr. Iain Macleod: Another mistake?

Sir K. Joseph: That may be so, but the impression which I got from the Chancellor was that he was telling particularly his side of the House that there was an optimistic trend in unemployment. He did not give the background which my right hon. Friend gave when he


showed that it was the second highest June unemployment rate since 1940.
I wonder whether some misleading information is not being given to the House about the first quarter of 1969 balance of payments outturn. There is obviously no omission to give any relevant figures, but while we welcome the remarkable rise in the invisibles in the first quarter, we wonder whether the level of invisible earnings is sustainable. Do not those for the first quarter include a large and welcome amount of oil dividends? On the capital account, on which the Chancellor laid great stress, is it not true that it has been sustained by the suppliers of credit for import deposits and by seasonable balances of the sterling area? If either of those propositions is true, the first quarter did not give a typical picture.
The Chancellor accepted one of the dangers which we have constantly pointed out—a clash between the growth of exports and the growth of investments. He accepted this quite openly. We fear that if both are seeking to grow the net result may be a sucking in of more imports.
The Chancellor was silent about one of the vital factors. In a speech in which he appeared to give full information to the House, he did not in fact refer to the rate of growth of the domestic economy this year. We are left from the Budget Statement to assume that it is still likely to grow by 2 per cent., mainly in the second half of this year, gaining momentum in the first half of 1970.
So far as we can see, the central part of the Government's strategy is to try to get a balance of payments surplus entirely by keeping the level of growth in the domestic economy to the minimum. Only by reducing consumption so that imports are down do they hope to keep within the Letter of Intent. That is their strategy.
The House knows that in this country imports have a relationship to growth. Every 1 per cent. growth, so the Board of Trade tells us, brings in its train 1⅔ per cent. rise in import volume. This rate may alter with the very high interest rates now being charged. Moreover, the Government must recognise that any surge in exports has to be preceded by a surge in imports. Therefore, if they are

hoping for an export rise, we have to be ready for an import rise in preparation.
The Government have committed the country to a firm target of balance of payments, and yet this is at a time when world trade is unsure. The Chancellor was very optimistic about world trade, but our main markets are deflating hard and Government policy depends, in brief, on holding down consumption at home while counting on our markets abroad to continue to boom, and it seems a highly dangerous policy.
My right hon. Friend the Member for Brighton, Pavilion (Mr. Amery) made a remarkable speech on his welcome return to the House. He spoke of feeling like Rip Van Winkle waking up to find the Socialist party transmogrified. We who have been here watching them marvel at the transformation and, to some extent, can welcome it. They should have learned in opposition from our troubles when we were in Government, but they came to office pledged to a totally unrealistic, panacea, magic-wand approach that discounted altogether the difficulties and constraints of the balance of payments.
Gradually over the last three years my right hon. Friend has watched detachedly as the realities of economic life have been forced upon the Government. Illusions have been stripped away and they have come to recognise that the level of demand matters, that trade unions are sometimes not all that co-operative, that Professor Paisch lives and teaches, and now they recognise that Professor Friedman lives and teaches. But they will not cure the troubles of this country entirely by the discovery of money supply and holding down growth. I hope that my right hon. Friend the Member for Brighton, Pavilion and all my hon. and right hon. and learned Friends will urge the Government to yet more changes, yet more discoveries of ancient truths, because as my hon. Friend the Member for Cities of London and Westminster pointed out, it is confidence which is the key to the balance of payments and it is enterprise and innovation and initiative that need to be encouraged by the tax system which are the missing factors in Government strategy.
The Government threw away confidence in their first few weeks of office. In their desperate anxiety to discredit the


last Conservative Government they threw away the confidence card and they have never been able to recover it. They threw away invisibles; they have never fully valued invisibles, and they have thrown away our vital overseas investments. I do not think that the Government yet realise what is happening. We are nearly investing less abroad now than is being invested by foreigners here. That means that the net inflow of foreign exchange which has sustained and enriched this country is now by the action of the Government turning against us. Very shortly the income that used to come in from abroad will go out from us, overseas. That impoverishes the countries where we could have invested, and it certainly impoverishes us.
The great wealth of this country lies in our under-used resources, our under-used management, our under-used inventors, or under-used investors, our under-used workers. Only by stimulating all these by tax changes and switching the under-employed manpower from the less productive activities like local authorities and hospital boards—where, according to Mr. Aubrey Jones, productivity and man-management is appalling—into competitive industry will growth without damage to our balance of payments occur.
There are many more changes that the Government must adopt. They must learn that not only do they have to attend to money supply, to the level of demand, but that they must attend to the level of public expenditure and the marginal level of taxation at all income levels. They have to learn that without these further changes such reforms as they have come to adopt will not be effective.
There have today been two additional speakers in our debate. There have walked the substantial figures of Sir Roy Harrod and Mr. Gordon Tether, on both sides of the House, with their continuous advocacy of the panacea of import controls. I was disappointed that my right hon. Friend the Member for Brighton, Pavilion joined the hon. Member for Ashton-under-Lyne (Mr. Sheldon) in urging import controls. It is an emasculating and weakening policy. It reduces the effectiveness of competition on our own manufacturers and suppliers and, despite the arguments of the hon. Member for Ashton-under-Lyne, it carries with it

the need for further deflation to make room for import replacement. But I think that my right hon. Friend the Member for Pavilion was absolutely right in urging the intelligent clientship of British Governments in relation to British industry.
Behind all the technical argument, I come to the crucial point for hon. Members opposite. What is the effect of nearly five years of errors, misjudgments and failures of Socialist Governments on the British people? I take the yardstick which I think they would use if they were criticising us. I take the standard of living. I accept at once, and I give them this admission, that come November, if the cost of living does not rise sharper than it has risen this year, then after five years of Socialism pensions will have risen marginally more in real terms than they did during the last five years of Tory government. But it will be a very marginal increase.
We welcome such improvement as there is, but, apart from that, the standard of living has limped abominably under Socialism. In national terms, the average increase in the real standard of living, after tax, was 3 per cent. per annum throughout the 13 years of Tory administration. The four years of Socialist administration which can be measured have produced precisely half the increase per annum in the real standard of living—1·5 per cent. after tax. That is half the rate of increase in the standard of living. That is the achievement so far of this Socialist Government.
When we turn to the areas which would have most disturbed Socialist consciences in opposition we find a sad story. The low-paid adult male worker, as we know from the campaign of the Child Poverty Action Group, has been virtually ignored by the Government. Minister after Minister has been appointed to try to find a solution, and all have failed. All that we have had has been a welcome but relatively small increase in family allowances, with next November a 1s. cut in insurance contributions. Only yesterday there were in the Lobby a large number of disabled people who have been asking the Government for four years, since the remarkable late Mrs. du Boisson started the campaign—[Interruption.] The Disablement Income Group started its campaign only after


the Socialist Party came to power. On every aspect of the standard of living which should matter most to hon. Members, except marginally with pensions, the Government have failed, and that is the result of their errors and misjudgments.
The only hope of the Government and the only hope that they can display in their Letter of Intent is that there should be an export-led crawl. This year we face a growth rate of 2 per cent. at best. It may be all that we can manage at the moment because of the situation which the Government have brought about. But let us hope that if the balance of payments comes right we shall have no talk of miracles from the Prime Minister. If any solution occurs, it will have been achieved entirely by holding back the growth of the economy and the standard of living of the British people.
Debt, devaluation, deflation and more debt and more deflation have been the achievements of the Government. The Prime Minister described us as going "cap in hand" to the I.M.F. After all the borrowing which the Government have gone in for, the Prime Minister is on his knees, or even lower. The Chancellor of the Exchequer may have renounced the "crawling peg", but we have a crawling growth rate in this country and a crawling Government, and the sooner they leave the scene the better.

9.30 p.m.

The Financial Secretary to the Treasury (Mr. Harold Lever): In so far as mistakes are a source of instruction, we ought to have learned much from the late Conservative Government, as the right hon. Gentleman the Member for Leeds, North-East (Sir K. Joseph) has said. He can also feel assured that the same copious source is available to us even while they are in opposition.
In spite of the colourful hyperbole which tends to be habitual in this sort of debate, with much talk of climb downs, capitulations, cap in hand and the like, I have been rather heartened by one aspect of the debate. That is that both sides of the House—all parts of the House—have clearly accepted the validity of the modern economic ethic, which displeased past orthodoxy with

another orthodoxy, that is the orthodoxy of putting to the full use in the service of mankind all the human and mechanical resources available to us to enrich the standard of life of the peoples of our own country and of all other countries and to improve the standard of social welfare.
What was not as clearly grasped all over the House were the mechanics which have made the new orthodoxy so firmly entrenched in the minds not only of everybody in this House but of most of the peoples of the world. The mechanics which achieved this orthodoxy and which have caused the flourishing post-war world to be so sharply distinguishable from the lamentable happenings of the 'thirties have been the level of international financial and economic co-operation and political co-operation which have developed between the peoples.
These are the mechanics which I more than once have called the evolution of the collective monetary and financial security of the Western World. Without that security, we would be once again endangered by the economic anarchy and the dreadful consequences of it of the pre-war years. We all ought to bear that firmly in mind whenever we hear the kind of talk we have heard in this debate about making up our minds whether this or that particular policy is in the national interest. If it is we undertake it. We should bear in mind that this co-operation out of which the system of world monetary security is built is a prime British national interest. No country has so profound an interest in developing and perpetuating it as this country, and no country would suffer so grievously if we were to allow academically brilliant doctrines to cast unilateral spanners into this machinery.
It is for these reasons that I welcome very much the rejection by hon. and right hon. Gentleman in limene, out of hand, of everything involving import restrictions as being a breach of our international obligations, and the like. These are British interests as much as anyone else's.
We now look at the Letter of Intent which is the subject of our debate today. This was action taken within the context of collective monetary security to


which I have been referring. Of course, it was rather interesting to have what the right hon. Gentleman, I thought rather flatteringly, described as the documentation and blow-by-blow accounts and versions of how my right hon. Friend, and later I, took up the negotiations with the International Monetary Fund. I must say these make lively reading, and I make no complaint either against the newspaper article writers or the right hon. Gentleman for the interesting selective presentation, which he gave us, of their words. This is what I call a wise division of labour. They have to sell newspapers, we have to run the Government, and the right hon. Gentleman has to make a specious dialectical case. All these are achieved.
I hope that my right hon. Friend and hon. Friends will not believe that there is any kind of coincidence in their accounts of the negotiations and their reality, when I happened to be present for most of the time. The policies there discussed were the policies of the British Government, as formulated in the British Treasury, and as finally approved by the British Chancellor of the Exchequer.
I was asked, more than once, again in pursuit of this phantasy, about what discussions we had relating to the Industrial Relations Bill which was under discussion when I went to Washington. The answer is, "None, Sir". I should point out that the I.M.F. is a monetary and financial organisation which never concerns itself with the domestic political policies of a country. Let us stick to the narrow point. Industrial relations sounded like a good hook on which to catch the Government because we were in full industrial flight when I went to Washington, and it was all over by the time the Letter of Intent was signed.
I assure the House that the matter was never discussed. I can only tell the right hon. Gentleman that it was just as well that this was not within the ambit of M. Schweitzer's curiosity, because he could hardly have had a less rewarding Minister to gratify than myself. I confess that documents on and relating to this policy passed across my desk before I went to Washington, but unhappily other matters occupied my time.

Mr. Biffen: rose—

Mr. Lever: I shall give way in a moment. I do not want anybody to suppose that I should have neglected to read this and other matters which came across my desk. I did not read them, because before the time became available for me to do so a happy transition had occurred in the policy. All this is very powerful stuff in the kind of mania and phantasy which dominates some of our discussions about what is supposed to take place when we speak to M. Schweitzer.

Mr. Biffen: I happily accept the right hon. Gentleman's assurance that matters which are domestic to this country and Parliament are not a subject of interest to the I.M.F. Can the right hon. Gentleman say why, therefore, M. Schweitzer was not bored by paragraph 10 which indicated the next line of the prices and incomes policy? Surely that is no concern of his either?

Mr. Lever: The Letter of Intent is the Chancellor's. The fact that he likes to round it off in its full value is a matter of aesthetic and economic judgment, an exercise in which he has the fullest confidence of all Members of the Government, including myself. It does not follow that every detail in it is going to be discussed by the I.M.F. I was asked specifically about the industrial relations policy, and I assure the House that it was never mentioned.
I was asked whether we discussed the money supply. I should have been very much enriched if we had discussed it with the kind of depth that was given to it in our debate today, especially by my hon. Friend the Member for Stoke-on-Trent, Central (Mr. Cant), with most of whose speech I find myself in agreement.
There is a general feeling that domestic credit expansion is a neglected factor. I should not write Keynes off as defunct because he thought mainly of an underemployed economy. We should rather criticise ourselves that when we moved from an under-employed economy to an economy of high demand and high employment we did not earlier give attention to the question of money supply—or domestic credit expansion—as one of the factors that help us to pursue and control the polices which are desirable to achieve growth and balance.
I can assure hon. Members on both sides of the House that no abdication on money supply or anything else took place in the discussion with the I.M.F. It is worth remembering who the I.M.F. are. They are not bankers, as hon. and right hon. Gentlemen opposite keep insisting; they are a financial agency and a syndicate of nations of whom we are a leading member, organised to provide some of that international monetary security which will give Governments, when they have balance of payments difficulties, not less but more room to manœuvre—not more pressure to deflate and disrupt but to provide an onward surge of wealth creation in the world, with more room to avoid that catastrophic happening. These are not bankers. To say that is to mislead. These are our partners and our allies—our co-operating fellow members in the world syndicate, attempting to achieve world monetary and economic security.
It is ludicrous to talk of our negotiations with them as though we were attending a second-rate mortgage broker on the east side of London. The I.M.F. is a great world institution. No country has more interest in its development than we have. As a member of it, no country should be more grateful that it has had the good fortune to be presided over by two men of outstanding distinction in Per Jacobsson and Pierre-Paul Schweitzer, who well understand the international responsibilities that they have in this organisation—and understand them rather differently from the way in which the somewhat uniformed corn-meat upon our discussions has suggested.

Mr. Hugh Fraser: If these people cannot be called world bankers, can the right hon. Gentleman tell us what we owe to the central bank?

Mr. Lever: I am sorry that I gave way to the right hon. Gentleman. I want to get on with my speech. [HON. MEMBERS: "Answer."] The answer is—briefly, since although hon. Members want it here they will have to have it later—that we publish more information on this subject and on all economic subjects than did Conservative Governments in the past. If they can make out a case for more information being given my right hon. Friend will consider it.
What is the remedy offered to us?

Mr. Iain Macleod: This is a very important point. The right hon. Gentleman has just compared the amount of information which this Government give with the amount given by their Tory predecessors. He must be aware that a practice started in 1965 cancelled the previous system of publishing in full our indebtedness in the Bank of England Quarterly Bulletin. In the documents that his Government have produced has the whole of our indebtedness been revealed?

Mr. Lever: I will rest on the statement that I have already made and try to pursue the theme of my speech. [HON. MEMBERS: "Answer."] I have not claimed in anything that I have said that every single debt owed by this country to every single banker has been disclosed. If that helps the right hon. Gentleman, good luck to him.
What went wrong with the Tories when they were in Government is very relevant in deciding whether the Chancellor's policy is right today. The only policy the Tories have as an alternative is to restore confidence, and the only method of restoring confidence is to bring back the Conservative Party. What is the great value of confidence in the Conservative Party? We are led to suppose that while in office, and until—to express it in the words of the right hon. Member for Brighton, Pavilion (Mr. Amery)—the clumsy paws of the Labour Government came upon the financial levers—no pun intended—we had an exceedingly well-structured financial system, prospering and advancing.
That is not the whole truth. I give the right hon. Gentleman this: I have never suggested that the 13 years of Tory rule were an abject failure. They made a certain degree of progress. The trouble was that it was consistently slower than the progress being made in other countries. In the short term this does not matter very much. In the cumulative long term, if all these countries have more to give out in incentives at all levels and because of their greater expansion, have more to plough back in capital investment in all directions, we have a consistently lower rate of growth. After those 13 years this ends up as a serious liability to the Government that must follow them.
The real reason they got into that position was precisely their monolithic concentration on the question of confidence, because confidence for them meant financing our international commitments with hot money. We must not be led to suppose that, however diffident the money holder is when he sees my right hon. Friend at the Treasury, the mere existence of Conservative Members preaching unimpeachable doctrines of financial and political orthodoxy guarantees us solvency if we have an unsatisfactory financial structure.
Over and over again the Tory commitments overseas, financed on a large volume of hot money, brought about exchange crises. This was the fundamental weakness of their economic policy. It was because of a fundamental flaw in their financial policy, revealed when the right hon. Gentleman's father-in-law finally removed important controls. The fundamental flaw was that there was no sound financial structuring of our overseas commitments. It was financed with hot money on confidence. When the confidence evaporated the Tory Government, who, to be fair, were as wedded to expansion as anybody in the House, for obvious reasons—especially at election times—were forced to tailor their economic policies not to the domestic requirements of our industry at home, but to the need to defend the exchange rate and guard the mountain of hot money dependent on their confidence.
It is these repeated interruptions of the sustained advance of British industry, because of the unsound financial structures which the Tory Governments employed, that have led steadily to a growing lack of competitiveness on the part of British industry.

Mr. Maurice Macmillan: Could the right hon. Gentleman explain how the cumulative current account published in the Red Book for 1964 to 1968 is minus £1,300 million; the equivalent cumulative figure for the 13 years of Tory rule, including 1964, was plus £773 million on current account, without having anything to do with hot money; and the first post-war Labour Government showed a cumulative deficit of £105 million?

Mr. Lever: The point I was making is that in 13 years of Conservative Government

there was a cumulative deficit on capital and current account combined of £1,400 million, all unsoundly financed. The fact that it was unsoundly financed brought the kind of difficulties faced by the right hon. and learned Member for Wirral (Mr. Selwyn Lloyd), with his famous squeezes and the like.
I want to tell my colleagues especially, though I hope that some hon. Members opposite will bear this in mind, that when one goes to borrow hot money in quantity there are no Letters of Intent, no statements of one's economic policy, just the unfettered right for the man who lent it, if his reflexes are offended or agitated, to withdraw it and force one helter-skelter into the kind of reactionary policies progressive Members opposite, like the right hon. and learned Member for Wirral, were forced to employ from time to time. I prefer to deal with an international organisation which is wedded to the concept of expansion and international co-operation. I find no humiliation in arranging borrowing terms there. That is safer for the country than a spurious attempt to win confidence, confidence which must be bolstered up at three-yearly intervals by stopping the onward march of our domestic industry.

Mr. Selwyn Lloyd: As the right hon. Gentleman is talking about the management of the national finances during Conservative rule, will he accept that of the £3,400 million of foreign long-term debt now outstanding, £25 million was contracted by the Tory Administration; in other words, 1¼d. out of every £ now owing?

Mr. Lever: I was expecting that. [HON. MEMBERS: "Answer."] They took in hot money by the bucketful, and that is recorded nowhere as the debt of the Government but as private debt over the country. When it was withdrawn in a hurry the economy had to be deflated, which is what the right hon. and learned Member for Wirral did. Although he is perhaps one of the most progressive people on the benches opposite, he will be remembered in history as the man who did more damage to the onward progress of British industry in the last 20 years than anyone else by the freeze that was forced on him.

Sir K. Joseph: Will the right hon. Gentleman complete the picture by agreeing that during our 13 years in office we


built up assets overseas £2,000 million in excess of what we found when we came to power of which the present Prime Minister was quick enough to boast during his visit to New York?

Mr. Lever: I will not. [Interruption.] I am sure that the right hon. Gentleman will not consider me discourteous if I do not reply to every irrelevant debating point which, in any event, only interrupts the theme I am following at the time.
I did not deny that the Tories did some useful work. It would have been surprising if, in 13 years, they had not done so. They failed to set up a solid financial structure which would allow Britain to undertake its massive defence commitments and engage in the exports of capital, which is vital to our long-term future as exporters and vital from the point of view of invisible earnings. They failed to set up a structure which would allow us to do these things, a structure which the Labour Government have set up.
The Labour Government, not the Tories, have integrated a rickety sterling area into a world monetary system. The Labour Government, not the Tories, have, for the first time, abandoned a megalomania which forbad this country to seek to act as an entrepreneur in exporting capital and to seek to attract capital funds, long-term and medium-term, from other countries to enable it to enlarge and fulfil its rôle in the export of capital to the world. The Labour Government, not the Tories, have sought to tailor military commitments to our economic resources.
I warn anybody who wants to see the solution in the simplest language of the Tories—in terms of the kind of confidence that will enable us to finance ourselves once again by hot money—to remember that the game of hot money finance has become steadily more precarious and expensive. Thus, the Conservative Party would, if returned to power, cost us, in this error, far more even than they cost us with their stop-go policies in the 13 years when they were in office.
The real heart of the debate is a short one. What are our present prospects? Are we, as some of the pundits say, on the eve of a recession or mini-recession or are we, as the Chancellor says, going to expand and continue the expansion of last year. I am confident that the analysis

offered by my right hon. Friend—which was for a growth rate this year of 3 per cent. and not of 2 per cent., as the right hon. Member for Enfield, West suggested—is nearer the mark.

An Hon. Member: What about unemployment?

Mr. Lever: The Chancellor's words were not ambiguous. He said that unemployment as an indicator was this year more hopeful than last year. Last year we were having a 4 per cent. growth rate in our industry, and we were improving our balance of payments. It is rather a hopeful indicator that we should find a rather better movement in the unemployment rate for this time of year than we found last year, when we were making the best progress we had made for many a year in our balance of payments and in our growth rate.
My hon. Friend the Member for Ashton-under-Lyne (Mr. Sheldon) was worried about the quarterly consultations and said that these were "triggers" as much as anything else. A "trigger" comes into operation when some specific target or achievement is missed. We have agreed to consultations in the normal way, quarterly, related to any future tranches we may wish to draw, but when we have had these consultations they have covered the whole field of the economy and the entire situation existing at the time. There is nothing either abnormal or unreasonable about it. This is a one-billion dollar loan standby. In normal expectation, we want the rest of the one billion loan, and, in normal expectation, we will draw the rest of it. It is perfectly right that in dealing with this international institution we should have these consultations before the next tranches are drawn.
Finally, I want to—

Mr. Hugh Fraser: Resign.

Mr. Lever: The right hon. Gentleman might leave me these few minutes to complete my speech before resigning.
I want to tell my hon. Friends who have any disquiet about this matter that the policies agreed upon in Washington are the policies of the British Government. The D.C.E., the rate of growth, the rejection of import controls on their merits and because they would be in breach of our international obligations, the rejection of floating rates—these are


all British decisions arrived at by the British Government in their unfettered judgment. There has been no abdication in any shape or form.
Moreover, the Letter of Intent describes the situation as we honestly estimate it in advance. Our judgment will remain unfettered as the actual situation unfolds. As to what is the right measure to take at a particular time, the right measure will be judged in relation to the specific commitments of the Chancellor's strategy—growth and the solution of our balance of payments problem.

There has been no humiliation, no cap-in-hand attitude. There has been an equality of discussion with our friends in the International Monetary Fund to further the entirely healthy economic purposes of the Government, which include the fullest co-operation with other progressive nations, all, like ourselves, members of the International Monetary Fund.

Question put, That this House do now adjourn:—

The House divided: Ayes 243, Noes 292.

Division No. 290.]
AYES
[10.0 p.m.


Alison, Michael (Barkston Ash)
Douglas-Home, Rt. Hn. Sir Alec
Joseph, Rt. Hn. Sir Keith


Allason, James (Hemel Hempstead)
Drayson, G. B.
Kaberry, Sir Donald


Amery, Rt. Hn. Julian
du Cann, Rt. Hn. Edward
Kerby, Capt. Henry


Astor, John
Eden, Sir John
Kershaw, Anthony


Atkins, Humphrey (M't'n &amp; M'd'n)
Elliot, Capt. Walter (Carshalton)
Kimball, Marcus


Awdry, Daniel
Emery, Peter
King, Evelyn (Dorset, S.)


Baker, Kenneth (Acton)
Errington, Sir Eric
Kitson, Timothy


Baker, W. H. K. (Banff)
Eyre, Reginald
Lambton, Viscount


Balniel, Lord
Farr, John
Lancaster, Col. C. G.


Barber, Rt. Hn. Anthony
Fisher, Nigel
Lane, David


Batsford, Brian
Fletcher-Cooke, Charles
Langford-Holt, Sir John


Beamish, Col. Sir Tufton
Fortescue, Tim
Legge-Bourke, Sir Harry


Bell, Ronald
Foster, Sir John
Lewis, Kenneth (Rutland)


Bennett, Sir Frederic (Torquay)
Fraser, Rt. Hn. Hugh (St'fford &amp; Stone)
Lloyd, Rt. Hn. Geoffrey (Sut'n C'd field)


Berry, Hn. Anthony
Gibson-Watt, David
Lloyd, Rt. Hn. Selwyn (Wirral)


Biffen, John
Gilmour, Ian (Norfolk, C.)
Longden, Gilbert


Biggs-Davison, John
Gilmour, Sir John (Fife, E.)
Lubbock, Eric


Birch, Rt. Hn. Nigel
Glover, Sir Douglas
McAdden, Sir Stephen


Black, Sir Cyril
Godber, Rt. Hn. J. B.
MacArthur, Ian


Blaker, Peter
Goodhart, Philip
Maclean, Sir Fitzroy


Boardman, Tom (Leicester, S. W.)
Goodhew, Victor
Macleod, Rt. Hn. Iain


Body, Richard
Gower, Raymond
McMaster, Stanley


Boyd-Carpenter, Rt. Hn. John
Grant, Anthony
Macmillan, Maurice (Farnham)


Braine, Bernard
Grant-Ferris, Sir Robert
McNair-Wilson, Michael


Brewis, John
Gresham Cooke, R.
McNair-Wilson, Patrick (New Forest)


Brinton, Sir Tatton
Griffiths, Eldon (Bury St. Edmunds)
Maddan, Martin


Brown, Sir Edward (Bath)
Grimond, Rt. Hn. J.
Maginnis, John E.


Bryan, Paul
Gurden Harold
Marples, Rt. Hn. Ernest


Buchanan-Smith, Alick (Angus, N &amp; M)
Hall, John (Wycombe)
Marten, Neil


Buck, Antony (Colchester)
Hall-Davis, A. G. F.
Maude, Angus


Bullus, Sir Eric
Hamilton, Lord (Fermanagh)
Maudling, Rt. Hn. Reginald


Burden, F. A.
Hamilton, Michael (Salisbury)
Mawby, Ray


Campbell, B. (Oldham, W.)
Harris, Frederic (Croydon, N. W.)
Maxwell-Hyslop, R. J.


Campbell, Gordon (Moray &amp; Nairn)
Harris, Reader (Heston)
Mills, Peter (Torrington)


Carlisle, Mark

Mills, Stratton (Belfast, N.)


Carr, Rt. Hn. Robert
Harrison, Brian (Maldon)
Miscampbell, Norman


Channon, H. P. G.
Harrison, Col. Sir Harwood (Eye)
Mitchell, David (Basingstoke)


Chataway, Christopher
Harvie Anderson, Miss
Monro, Hector


Chichester-Clark, R.
Hawkins, Paul
Montgomery, Fergus


Clark, Henry
Hay, John
Morrison, Charles (Devizes)


Cooke, Robert
Heald, Rt. Hn. Sir Lionel
Mott-Radclyffe, Sir Charles


Cooper-Key, Sir Neill
Heseltine, Michael
Munro-Lucas-Tooth, Sir Hugh


Cordle, John
Higgins, Terence L.
Murton, Oscar


Corfield, F. V.
Hiley, Joseph
Nabarro, Sir Gerald


Costain, A. P.
Hill, J. E. B.
Neave, Airey


Craddock, Sir Beresford (Spelthorne)
Hirst, Geoffrey
Nicholls, Sir Harmar


Crouch, David
Hogg, Rt. Hn. Quintin
Noble, Rt. Hn. Michael


Crowder, F. P.
Holland, Philip
Nott, John


Cunningham, Sir Knox
Hooson, Emlyn
Onslow, Cranley


Currie, G. B. H.
Hordern, Peter
Orr, Capt. L. P. S.


Dalkeith, Earl of
Howell, David (Guildford)
Orr-Ewing, Sir Ian


Dance, James
Hunt, John
Osborne, Sir Cyril (Louth)


d'Avigdor-Goldsmid, Sir Henry
Hutchison, Michael Clark
Page, Graham (Crosby)


Dean, Paul
Irvine, Bryant Godman (Rye)
Page, John (Harrow, W.)


Deedes, Rt. Hn. W. F. (Ashford)
Jenkin, Patrick (Woodford)
Pardoe, John


Digby, Simon Wingfield
Jennings, J. C. (Burton)
Pearson, Sir Frank (Clitheroe)


Dodds-Parker, Douglas
Johnson Smith, G. (E. Grinstead)
Peel, John


Donnelly, Desmond
Jones, Arthur (Northants, S.)
Percival, Ian


Doughty, Charles
Jopling, Michael
Peyton, John




Pike, Miss Mervyn
Shaw, Michael (Sc'b'gh &amp; Whitby)
Wainwright, Richard (Colne Valley)


Pink, R. Bonner
Silvester, Frederick
Walker, Peter (Worcester)


Powell, Rt. Hn. J. Enoch
Sinclair, Sir George
Walker-Smith, Rt. Hn. Sir Derek


Price, David (Eastleigh)
Smith, Dudley (W'wick &amp; L'mington)
Walters, Dennis


Pym, Francis
Smith, John (London &amp; W'minster)
Ward, Dame Irene


Quennell, Miss J. M.
Speed, Keith
Weatherill, Bernard


Ramsden, Rt. Hn. James
Stainton, Keith
Wells, John (Maidstone)


Rawlinson, Rt. Hn. Sir Peter
Steel, David (Roxburgh)
Whitelaw, Rt. Hn. William


Rees-Davies, W. R.
Stodart, Anthony
Wiggin, A. W.


Renton, Rt. Hn. Sir David
Stoddart-Scott, Col. Sir M.
Williams, Donald (Dudey)


Rhys Williams, Sir Brandon
Summers, Sir Spencer
Wilson, Geoffrey (Truro)


Ridley, Hn. Nicholas
Tapsell, Peter
Winstanley, Dr. M. P.


Ridsdale, Julian
Taylor, Sir Charles (Eastbourne)
Wolrige-Gordon, Patrick


Rippon, Rt. Hn. Geoffrey
Taylor, Edward M. (G'gow, Cathcart)
Wood, Rt. Hn. Richard


Robson Brown, Sir William
Taylor, Frank (Moss Side)
Woodnutt, Mark


Rodgers, Sir John (Sevenoaks)
Temple, John M.
Worsley, Marcus


Rossi, Hugh (Hornsey)
Thatcher, Mrs. Margaret
Wright, Esmond


Royle, Anthony
Thorpe, Rt. Hn. Jeremy
Wylie, N. R.


Russell, Sir Ronald
Tilney, John
Younger, Hn. George


St. John-Stevas, Norman
Turton, Rt. Hn. R. H.



Sandys, Rt. Hn. D.
van Straubenzee, W. R.
TELLERS FOR THE AYES


Scott, Nicholas
Vaughan-Morgan, Rt. Hn. Sir John
Mr. R. W. Elliott and


Scott-Hopkins, James
Vickers, Dame Joan
Mr. Jasper More.


Sharples, Richard
Waddington, David





NOES


Abse, Leo
Davies, Ifor (Gower)
Hattersley, Roy


Albu, Austen
Delargy, Hugh
Hazell, Bert


Allaun, Frank (Salford, E.)
Dell, Edmund
Heffer, Eric S.


Alldritt, Walter
Dempsey, James
Henig, Stanley


Anderson, Donald
Dewar, Donald
Hilton, W. S.


Archer, Peter
Diamond, Rt. Hn. John
Hooley, Frank


Armstrong, Ernest
Dobson, Ray
Houghton, Rt. Hn. Douglas


Ashley, Jack
Doig, Peter
Howarth, Harry (Wellingborough)


Atkins, Ronald (Preston, N.)
Driberg, Tom
Howarth, Robert (Bolton, E.)


Atkinson, Norman (Tottenham)
Dunn, James A.
Howie, W.


Bacon, Rt. Hn. Alice
Dunnett, Jack
Hoy, Rt. Hn. James


Bagier, Gordon A. T.
Dunwoody, Mrs. Gwyneth (Exeter)
Hughes, Rt. Hn. Cledwyn (Anglesey)


Barrett, Joel
Dunwoody, Dr. John (F'th &amp; C'b'e)
Hughes, Hector (Aberdeen, N.)


Baxter, William
Eadie, Alex
Hughes, Roy (Newport)


Beaney, Alan
Edelman, Maurice
Hunter, Adam


Bidwell, Sydney
Edwards, Robert (Bilston)
Hynd, John


Binns, John
Edwards, William (Merioneth)
Irvine, Sir Arthur (Edge Hill)


Bishop, E. S.
Ellis, John
Jackson, Colin (B'h'se &amp; Spenb'gh)


Blackburn, F.
English, Michael
Janner, Sir Barnett


Blenkinsop, Arthur
Ennals, David
Jay, Rt. Hn. Douglas


Boardman, H. (Leigh)
Ensor, David
Jeger, George (Goole)


Booth, Albert
Evans, Albert (Islington, S. W.)
Jenkins, Hugh (Putney)


Boston, Terence

Jenkins, Rt. Hn. Roy (Stechford)


Bottomley, Rt. Hn. Arthur
Evans, Fred (Caerphilly)
Johnson, Carol (Lewisham, S.)


Boyden, James
Faulds, Andrew
Johnson, James (K'ston-on-Hull, W.)


Bradley, Tom
Fernyhough, E.
Jones, Dan (Burnley)


Bray, Dr. Jeremy
Finch, Harold
Jones, Rt. Hn. Sir Elwyn (W. Ham, S.)


Brooks, Edwin
Fitch, Alan (Wigan)
Jones, J. Idwal (Wrexham)


Broughton, Sir Alfred
Fletcher, Rt. Hn. Sir Erin (Islington, E.)
Jones, T. Alec (Rhendda, West)


Brown, Rt. Hn. George (Belper)
Fletcher, Raymond (Ilkeston)
Kelley, Richard


Brown, Hugh D. (G'gow, Provan)
Fletcher, Ted (Darlington)
Kenyon, Clifford


Brown, Bob (N'c'tle-upon-Tyne, W.)
Foley, Maurice
Kerr, Dr. David (W'worth, Central)


Brown, R. W. (Shoreditch &amp; F'bury)
Foot, Michael (Ebbw Vale)
Kerr, Russell (Feltham)


Buchan, Norman
Ford, Ben
Lawson, George


Buchanan, Richard (G'gow, Sp'burn)
Forrester, John
Leadbitter, Ted


Butler, Herbert (Hackney, C.)
Fowler, Gerry
Lee, Rt. Hn. Frederick (Newton)


Butler, Mrs. Joyce (Wood Green)
Fraser, John (Norwood)
Lee, Rt. Hn. Jennie (Cannock)


Callaghan, Rt. Hn. James
Freeson, Reginald
Lever, Rt. Hn. Harold (Cheetham)


Cant, R. B.
Galpern, Sir Myer
Lewis, Ron (Carlisle)


Carmichael, Neil
Gardner, Tony
Lipton, Marcus


Carter-Jones, Lewis
Ginsburg, David
Lomas, Kenneth


Castle, Rt. Hn. Barbara
Gordon Walker, Rt. Hn. P. C.
Loughlin, Charles


Chapman, Donald
Gray, Dr. Hugh (Yarmouth)
Luard, Evan


Coe, Denis
Greenwood, Rt. Hn. Anthony
Lyon, Alexander W. (York)


Coleman, Donald
Gregory, Arnold
Lyons, Edward (Bradford, E.)


Conlan, Bernard
Grey, Charles (Durham)
Mabon, Dr. J. Dickson


Corbet, Mrs. Freda
Griffiths, David (Rother Valley)
McBride, Neil


Craddock, George (Bradford, S.)
Griffiths, Eddie (Brightside)
McCann, John


Crawshaw, Richard
Griffiths, Will (Exchange)
MacColl, James


Crosland, Rt. Hn. Anthony
Gunter, Rt. Hn. R. J.
MacDermot, Niall


Crossman, Rt. Hn. Richard
Hamilton, James (Bothwell)
Macdonald, A. H.


Dalyell, Tam
Hamilton, William (Fife, W.)
McGuire, Michael


Darling, Rt. Hn. George
Hamling, William
McKay, Mrs. Margaret


Davidson, Arthur (Accrington)
Hannan, William
Mackenzie, Gregor (Rutherglen)


Davies, Ednyfed Hudson (Conway)
Harper, Joseph
Mackie, John


Davies, Dr. Ernest (Stretford)
Harrison, Walter (Wakefield)
Mackintosh, John P.


Davies, G. Elfed (Rhondda, E.)
Hart, Rt. Hn. Judith
Maclennan, Robert







MacMillan, Malcolm (Western Isles)
Page, Derek (King's Lynn)
Spriggs, Leslie


McMillan, Tom (Glasgow, C.)
Paget, R. T.
Steele, Thomas (Dunbartonshire, W.)


McNamara, J. Kevin
Palmer, Arthur
Stewart, Rt. Hn. Michael


MacPherson, Malcolm
Pannell, Rt. Hn. Charles
Stonehouse, Rt. Hn. John


Mahon, Peter (Preston, S.)
Park, Trevor
Strauss, Rt. Hn. G. R.


Mahon, Simon (Bootle)
Parker, John (Dagenham)
Summerskill, Hn. Dr. Shirley


Mallalieu, J. P. W. (Huddersfield, E.)
Parkyn, Brian (Bedford)
Swain, Thomas


Manuel, Archie
Pearson, Arthur (Pontypridd)
Symonds, J. B.


Mapp, Charles
Peart, Rt. Hn. Fred
Taverne, Dick


Marks, Kenneth
Pentland, Norman
Thomas, Rt. Hn. George


Marquand, David
Perry, George H. (Nottingham, S.)
Thomson, Rt. Hn. George


Mason, Rt. Hn. Roy
Prentice, Rt. Hn. R. E.
Thornton, Ernest


Mayhew, Christopher
Price, Thomas (Westhoughton)
Tinn, James


Mellish, Rt. Hn. Robert
Price, William (Rugby)
Tomney, Frank


Mendelson, John
Probert, Arthur
Tuck, Raphael


Mikardo, Ian
Pursey, Cmdr. Harry
Urwin, T. W.


Millan, Bruce
Randall, Harry
Varley, Eric G.


Miller, Dr. M. S.
Rankin, John
Wainwright, Edwin (Dearne Valley)


Milne, Edward (Blyth)
Rees, Merlyn
Walker, Harold (Doncaster)


Mitchell, R. C. (S'th'pton, Test)
Richard, Ivor
Wallace, George


Molloy, William
Roberts, Albert (Normanton)
Watkins, David (Consett)


Moonman, Eric
Roberts, Rt. Hn. Goronwy
Weitzman, David


Morgan, Elystan (Cardiganshire)
Roberts, Gwilym (Bedfordshire, S.)
Wellbeloved, James


Morris, Charles R. (Openshaw)
Robertson, John (Paisley)
Wells, William (Walsall, N.)


Morris, John (Aberavon)
Robison, Rt. Hn. Kenneth (St. P'c'as)
Whitaker, Ben


Moyle, Roland
Rodgers, William (Stockton)
White, Mrs. Eirene


Mulley, Rt. Hn. Frederick
Roebuck, Roy
Whitlock, William


Murray, Albert
Rogers, George (Kensington, N.)
Wilkins, W. A.


Neal, Harold
Ross, Rt. Hn. William
Willey, Rt. Hn. Frederick


Newens, Stan
Rowlands, E.
Williams, Alan (Swansea, W.)


Noel-Baker, Rt. Hn. Philip
Ryan, John
Williams, Alan Lee (Hornchurch)


Norwood, Christopher
Shaw, Arnold (Ilford, S.)
Williams, Clifford (Abertillery)


Oakes, Gordon
Sheldon, Robert
Williams, W. T. (Warrington)


Ogden, Eric
Shinwell, Rt. Hn. E.
Willis, Rt. Hn. George


O'Malley, Brian
Shore, Rt. Hn. Peter (Stepney)
Wilson, Rt. Hn. Harold (Huyton)


Oram, Albert E.
Short, Rt. Hn. Edward (N'c'tle-u-Tyne)
Winnick, David


Orbach, Maurice
Short, Mrs. Renée (W'hampton, N. E.)
Woof, Robert


Orme, Stanley
Silkin, Rt. Hn. John (Deptford)
Wyatt, Woodrow


Oswald, Thomas
Skeffington, Arthur
TELLERS FOR THE NOES:


Owen, Dr. David (Plymouth, S'tn)
Slater, Joseph
Mr. Ernest G. Perry and


Owen, Will (Morpeth)
Small, William
Mr. J. D. Concannon.


Padley, Walter
Snow, Julian

Orders of the Day — BUSINESS OF THE HOUSE

Ordered,
That the Proceedings on the Motion relating to Civil Aviation may be entered upon and proceeded with at this day's Sitting at any hour during a period of one and a half hours after Ten o'clock, though opposed.—[Mr. Ernest G. Perry.]

Orders of the Day — LAW OF PROPERTY BILL [Lords]

Order for Second Reading read.

Motion made, and Question put forthwith pursuant to Standing Order No. 60A (Second Reading Committees), That the Bill be now read a Second time.

Question agreed to.

Bill accordingly read a Second time.

Bill committed to a Standing Committee pursuant to standing Order No. 40 (Committal of Bills).

Orders of the Day — LAW OF PROPERTY [MONEY]

Queen's Recommendation having been signified—

Resolved,
That, for the purposes of any Act of the present Session to amend Part II of the Landlord and Tenant Act, 1954, to provide for the closing of the Yorkshire deeds registries and to amend the law relating to dispositions of estates and interests in land and to land charges, it is expedient to authorise—

(1) the payment out of moneys provided by Parliament of—

(a) any expenses of the Treasury under any provision of that Act for making payments to the county councils concerned in connection with the closing of the Yorkshire deeds registries;
(b) any expenses of the Chief Land Registrar under any provisions of that Act for the payment of compensation in connection with the closing of the said registries or with undisclosed land charges;

(2) any increase attributable to that Act in the sums payable out of moneys provided by Parliament under any other Act.—[Mr. Ernest G. Perry.]

Orders of the Day — AVIATION (AIRPORT STANDARD CHARGES)

10.13 p.m.

Mr. John Rankin: I beg to move,
That the Civil Aviation (Navigation Services Charges) (Third Amendment) Regulations 1969 (S.I., 1969, No. 510), dated 1st April, 1969, a copy of which was laid before this House on 9th April, be withdrawn.
The Statutory Instrument imposes an increase of 50 per cent.—[Interruption,]—in the navigation service charges on civil aircraft using—[Interruption.]

Mr. Speaker: Order. It is difficult for an hon. Member to address the House against a multitude of debates.

Mr. Rankin: It imposes an increase of 50 per cent. in the navigation service charges on civil aircraft using non-British Airports Authority airports where the Board of Trade provides air traffic control facilities. The increase is 50 per cent. over the previous charges, which means that a charge of 3s. per 1,000 1b. all-up weight becomes 4s. 6d., and puts the increase well outside the Government's prices and incomes policy. So it makes matters worse if an unwilling local authority has to impose and collect on behalf of a Government agency such increases.
There is another serious source of complaint. It has become the custom to give airlines a full summer season's notice of any increase in charges because they make up their scales of charges, particularly for package tours, on the basis of what they know airport charges will be in the current year. Most airlines have now completed their contracts with their operators. Prices are fixed and so is the cost of the holiday to the individual. In all probability it is now too late for the operators to publicise changes in the navigation charges. Consequently, there will be serious difficulties in increasing the prices of individual tours. This does not help to promote all-round good will.
It would have been better, in my view, if the increase had only been applied after the completion of the present summer season, when most contractual obligations would have been met. I think it can be said that all the local authorities

feel that the application of the charge solely to municipal airports and not also to the British Airports Authority airports was a startling example of unfair discrimination. I believe that this selective imposition has been made on the ground that Heathrow's operations are self-supporting. I would not dispute this, but I do not believe that the operations of Gatwick and Prestwick can be described as self-supporting, and the B.A.A. accounts make this clear. Nor do I think that Stansted would be self-supporting. Yet these airports are exempt from the increase because the over all payments by the B.A.A. to the Board of Trade cover their costs.
I wonder, as a result of that, if one municipal airport happened to pay more than enough to cover its own operations, whether the other, non-State airports, would be relieved of their appropriate proportion of payments. Surely fairness would demand that if increases are essential they should apply to all airports in carrying them, whether they are State or municipally owned, although, I think, we would all agree that Heathrow should be exempted from such an arrangement.
The operation of the new charges raises a serious problem in Scotland particularly, and for Glasgow Airport especially. A few miles to the west of it lies Prestwick Airport, and equally near is Edinburgh. Both of these will be under the powerful patronage of the B.A.A. and fortified on their trading side by the Government's preferential 50 per cent. imposition. At the same time, Glasgow is not free to use at Abbotsinch aircraft of its own choice because of the restriction in the length of the main runway, which places an additional disability on the airport's potential, and this retardation coincided, ironically enough, with the suggestion of the Edwards Committee in its Report that the United Kingdom should have three international airports, one at London and the other two at Manchester and Glasgow, respectively. When I offer criticisms of the changes made by the Minister in acquiring some of his income, I may be forgiven for suggesting alternatives. Very properly, he is looking for savings in costs at airports. He might find it helpful to embark on an independent outside productivity survey into the operations


of the air traffic control and telecommunications services throughout the United Kingdom.

Mr. Speaker: Order. We are debating an Order. The hon. Gentleman cannot amend it, and he cannot discuss the airports in general. The Order imposes certain charges on some airports and not others.

Mr. Rankin: I accept that, Mr. Speaker, although I thought that when I was suggesting a course that might reduce the Minister's income it would be in order to suggest means whereby he could recoup some of it. Such an inquiry could well result in sufficient savings to relieve the Board of a fair proportion of the financial burdens which seem to be compelling the Minister to take his present most unpopular step.
Originally, the increase in charges was to be spread over Manchester, Liverpool, Birmingham, Glamorgan and Glasgow, plus four Board of Trade airports. However, I believe that one of the Board of Trade airports has been sold, and I understand that Glamorgan will not be affected and that Aberdeen will pay very little. Therefore, it would appear that the heavy end of the stick will be felt by the four municipal airports, plus Belfast, and from them about £350,000 will be extracted. If that assessment is incorrect I am sure that my hon. Friend will give us the correct figures.
A five or 10 per cent. increase spread across all those airports would hit British airlines less hard, and would share the costs more equally between British airlines and foreign operators. As it is, the Board of Trade proposals hit the already hard-pressed British airlines most, because they are major users of the five airports I have mentioned. Therefore, I urge on my right hon. Friend now an early reconsideration of his proposals.

10.24 p.m.

Mr. Tim Fortescue: The way in which the Order has been handled by the Board of Trade is a classic example of pretending to comply with the trappings of democracy but making up the Department's mind first and going through the motions of consulting other people later.
On 25th November a letter was written in the Board of Trade to the airport

authorities in the cities concerned, of which Liverpool was one, but it was not received in Liverpool until 3rd December. It asked the airport director to give his comments on the proposed increase of charges at that airport by 10th December. This did not leave much time for him to consult his appropriate committee—this is a municipal airport—and get his reply in, but he complied with that requirement and by 10th December his answer was with the Board of Trade. Nothing was heard from the Board of Trade, and on 19th March the directors of the five airports concerned—all municipal airports—asked the Board of Trade what had happened to the proposal. They were told that their objections were still being considered.
They heard nothing more until on 9th April the Order was laid in the House of Commons. So far as they know, no note has been taken of their protests. They were not consulted again and were not told and still have not been told what the Board of Trade thought of their views. Now, nearly two months after the coming into operation of the Order on 1st May, we have an opportunity to debate it when there is obviously no hope of getting it reversed. The Board of Trade may have complied with the rules, but in fact the democratic process has been scoffed at throughout.
The Order has three major defects. First, it is unfair; secondly, it is untimely; thirdly, it is uneconomic. It is unfair because, as the hon. Member for Glasgow, Govan (Mr. Rankin) has pointed out, it does not apply to all airports. All the British Airports Authority airports, which number four, are exempt from it. This, I understand, is because the profit made at Heathrow is more than enough to recompense the costs of the deficits at Prestwick, Gatwick and Stansted, and so those three airports are not being required to pay these increases in charges.
I should like to examine the implications of this decision. Let us say that tomorrow the British Airports Authority took over the airport at Manchester, which is not beyond the realms of possibility, if not tomorrow, in due course. The deficit at Manchester would also be more than covered by the profit made at Heathrow. Would the airport navigation charges at Manchester then be reduced?


The whole concept of the huge profit at Heathrow, made because it is the major international airport in the country, covering the deficit of other airports under the Authority is entirely unsound and absurd when one considers the further implications.
The other unfair feature, as the hon. Gentleman pointed out, is that not all airlines are affected by these increases. Foreign airlines, which by and large fly to Authority airports, do not have to pay, whereas British airlines, which are practically the exclusive users of the airports where the increases will apply, will be penalised. This is direct discrimination by the Board of Trade against British airlines, many of which are small and in no condition to stand any increases in charges.
The Order is untimely because all the agreements between airlines and airports for the summer season, when chartering of aircraft is very heavy, have been made and yet suddenly, on 1st May the airports found that they were to be charged more for the facilities which they received from the Board of Trade. Thus the profit margin which they thought they would make from airlines using them during the heavy traffic season will be greatly affected by these charges.
The Order is uneconomic because, as the Minister must know, municipal airports are going through a very bad time. The airport at Liverpool, which he knows even better than I do, is losing approximately £600,000 a year for the ratepayers of Liverpool. This is a problem which is baffling the authorities in Liverpool. They do not know whether to close the airport or to expand it and thus try to get more traffic, or what else to do with this valuable piece of real estate. The blow to them is considerable. They have been harshly affected by it and they feel aggrieved.
In the Edwards Report on British Air Transport in the Seventies references are made to these charges. The summary of the chapter on airports, page 231, says:
Although the policy of trying to make the airports and air traffic control services self-supporting is right and should be continued, the U.K. must take account of policies and practices in other countries.
It is well known that throughout Europe airport navigation charges are subsidised to a great extent by the Governments

concerned. If we were to stop those subsidies for British airports it will put some of our airports at a disadvantage in comparison with continental airports. The figures are most interesting. They were taken from a series of Parliamentary Answers from the Board of Trade recently.
The deficit on air navigation charges in this country in 1968–9 will be just over £2 million. When these increases are made, for the year 1969–70 the deficit will be £1,800,000 and in 1970 it will be up to £2 million again. This is a fleabite. This Order will make practically no difference at all to the financial position and it is not the way to solve this problem of air charges. It seems that the approach of the Board of Trade has been to nibble at the problem, which should be tackled far more extensively.

Mr. Speaker: Order. I would remind the House that this debate finishes at half-past Eleven; the Front Benches are intervening at Eleven o'clock. Brief speeches will help.

10.33 p.m.

Mr. Richard Buchanan: I am glad to follow the hon. Member for Liverpool, Garston (Mr. Fortescue), because he has epitomised the whole of the debate in his three points, and I support him entirely. We are not saying that the British Airports Authority with its air navigational control services should not pay. We think that it should be in the position of many other Government-sponsored organisations; it should be made to wash its face. What we object to is that the Government are discriminating against municipal enterprise in particular.
I speak particularly for Glasgow. There the Board of Trade said we should take over control of the airport at Abbotsinch vis-à-vis Renfrew. Renfrew was a small out-of-date aerodrome which had served the community very well. Glasgow took the bit between its teeth and municipal enterprise was rewarded by a first-class airport being established near Glasgow with excellent fast services to and from the centre of the city.
Glasgow is now being penalised because of its enterprise. It would not mind paying the extra charges if it was being allowed to develop its airport and


ancillary services but restrictions are being placed upon its development. A recent application to extend the runway was refused, and the Board of Trade is refusing certain charter flights permission to land there so that its ability to meet the extra charges is restricted. This enterprising airport is likely to be forced into the red because of this.
Many hon. Members pass through Heathrow several times a week. It is possibly the busiest airport in the world, and by discriminating in favour of such airports to the detriment of airports like Glasgow Municipal Airport, Birmingham Municipal Airport and Manchester Municipal Airport, we are adding to the troubles piling up year after year at Heathrow. It is impossible to expect Heathrow to cope with all the traffic. Another airport is probably necessary, but before it is built there will be an increase in traffic. It is in the interests of operators whose flights arriving to do so where landing charges are most economic as at Heathrow. This Order is untimely and unfair, discriminating in the worst possible way against municipal enterprise at its best.

Mr. Hugh Jenkins: Would my hon. Friend accept that many of us who are closely associated with Heathrow Airport, particularly those of us with constituencies under the glide path, strongly accept any proposition which would result in dispersal of a number of the aircraft landing at Heathrow, and would strongly resent any attempt by the Government to prevent dispersal which would be beneficial not only to the airport but also to those who live near it?

Mr. Buchanan: I am most grateful to my hon. Friend for his intervention, and I support him wholeheartedly. Although not within the province of these Regulations, or the argument of Glasgow versus Prestwick or Edinburgh, it is the case that the dispersal of aircraft in the future would be to the ultimate benefit of the people who reside around airports.

10.36 p.m.

Mr. Anthony Stodart: I promise that I shall be extremely brief. I want to take a slightly different line from those of hon. Gentlemen who come from a city neighbouring my own, and although it has not been

unknown in the past for Edinburgh and Glasgow to have different views on subjects, I do wholeheartedly agree with the point which they have made.
However, I want to make a slightly different point, and it is this. If charges are to be put up in this way, then I believe that the airlines involved are entitled to good service at the airports concerned. The Minister, I think, will have guessed that I am going to refer to the services which are available at Turnhouse.
The story of Turnhouse, as he knows, is a very long and a very dismal one. It goes back over a number of years. The diversions which take place owing to lack of runway and the lack of radar, although small as a percentage of flights, are maddening to those involved and. I believe, do quite a lot of harm to the business people who want to come to the expanding north-east of Scotland. It is one of the very few airports in the United Kingdom without radar. The runway is a notorious feature. The number of surveys made is staggering; and an alignment for a new runway was agreed over seven years ago. It is incredible, but I read within the last few weeks that the Minister told Edinburgh Corporation that the question now under discussion is whether or not the present runway is to be extended or whether a new one is to be built.

Mr. Speaker: Order. We are not discussing Edinburgh Airport or any other in general. We are discussing navigation service charges which, under these Regulations, will be increased by 50 per cent.

Mr. Stodart: With great respect, and always subject to your Ruling, Mr. Speaker, it is a valid point to make that if the charges are to be increased and British European Airways and others using Turnhouse Airport have these most inadequate services of any at any airport one should protest at the services not being improved. Having made that point, and having had your indulgence, I think, I do say to the Minister that it is really high time that the Board of Trade came to grips with this matter and made a decision one way or another.

10.39 p.m.

Mr. Edwin Brooks: Like the hon. Member for Liverpool, Garston (Mr. Fortescue), I speak as a Merseyside Member of the House who is aware of


the anxiety and even anger which is felt in that area about not only the character of the decision which has been taken by the Government, but the way in which, apparently, it was conveyed to the authorities concerned. I feel that there is a case to be answered by my hon. Friend. Certainly those of us who have been in contact with Liverpool Airport Authorities do feel, as a result of the story they told us, that there has been a breakdown of communication which needs explanation.
I find myself very much in agreement with many of the conclusions at which the hon. Member for Garston arrived, but I reach these conclusions for somewhat different reasons, and indeed I do not altogether share the hon. Gentleman's criticisms of the Government's action in its essential nature.
It should be remembered that as long ago as 1961, in the White Paper on Civil Aerodromes and Air Navigational Services, it was stated that the Government's policy entailed a levy on charges for air control, telecommunications, meteorological and other services provided at Exchequer expense for aircraft using civil aerodromes in the United Kingdom or whilst en route. It was stated quite clearly that the charges should progressively be increased until such time as the cost would be borne entirely by the industry. We have been told that a deficit has been incurred, apparently, at certain airports, and it is this deficit which, as I understand it, the Government are now attempting to reduce.

Mr. John Tilney: Would the hon. Gentleman also agree that since that time there has been a prices and incomes policy, and that what is proposed is an increase of 50 per cent.?

Mr. Brooks: I shall come to that, because I think that the hon. Gentleman is illustrating with a particular example the special and contrived framework within which we are trying to tion of the airlines and the airports apply commercial criteria to the opera-concerned.
I speak with some reservations, because, as a member of the Public Accounts Committee, I was a signatory to a Report which appeared some years

ago in which the Committee came out quite unequivocally in favour of an end as quickly as possible to this deficit, and we made the point, which I am sure the House would endorse, that it is wrong for the Exchequer to be seen as a permanent Father Christmas handing out money galore to anyone who happens to come along.
We also added one vital proviso. In a number of answers given by the witnesses before us, the point was made that there might well be a strong case for a subsidy to be paid in certain specified circumstances. When the P.A.C. proposed that an attempt should be made to reduce the deficit, it was also made quite clear that there might be a case for redressing some, or perhaps all, of the consequent damage that might be caused to certain interests, by means of a subsidy for certain well-defined purposes.

Mr. Speaker: Order. That may be so, but not on these Regulations.

Mr. Brooks: With respect, Mr. Speaker, the Government are for once endorsing the views put to them by a Select Committee. This is not an altogether usual experience for those who spend long hours serving on these Committees, and I think it is only right, at least briefly, and subject to your Ruling, to indicate to the House that when we made this recommendation—

Mr. Speaker: Order. The hon. Member can express his gratitude to the Government for following a Committee recommendation, which he says is unusual, but no subsidies are being discussed. We are increasing certain charges by 50 per cent.

Mr. Brooks: If we are increasing these charges, we are presumably arguing my implication that there is no case for a subsidy, but it is my view that there is a case for a subsidy.

Mr. Speaker: Order. There may be a very good case for a subsidy, but not in this debate.

Mr. F. V. Corfield: On a point of order, Mr. Speaker. In so far as charges do not cover their costs, there is a subsidy, and there is, therefore, an element of subsidy in this Order.

Mr. Speaker: That is true, too.

Mr. Brooks: There is the further point that the Government are making no effort to reduce the deficit on the en route services, which is greater than the one we are attempting to reduce by this Order.
I should like to put the point this way. Many of us accept that there is a case for trying to end an open-ended subsidy, but we feel that in a situation such as this, where there is an apparent discrimination against certain airports, there is also a strong case for considering specific discrimination in favour of those airports, on the basis of certain arguments about long-term regional policy. It is only fair to comment briefly from the answer given to me in the course of our interrogations, where Sir Richard Powell said:
I would guess that losses would continue on the other services outside the Highlands and Islands as well, but this is a question which will have to be decided, whether it is right to allow the subsidy to take this form of undercharging for these services or whether it would be right to charge the full cost or something more nearly approaching the full cost and make up the difference in some other way.
It was in the light of that comment and further comments of a similar kind that the Committee came to its considered recommendation, which I understand the Government are now endorsing, that it would be
wrong in principle that any airline … should, for more than the limited period required to build up traffic at newly established aerodromes, receive a hidden subsidy from the British taxpayer in the shape of navigation services provided free or below cost.
We went on to say that
It would be better to charge the airlines the full cost and leave them to meet the resulting increase in their expenditure from profits. If this were to make it impossible for British airlines to provide, without loss, services which are considered socially necessary it would be open to the Government to consider a direct subsidy, adjusted to the merits of each case.
My case is that the Government have made no effort in laying these Regulations to justify the absence of a discriminating subsidy of the sort the Public Accounts Committee considered should be taken note of and perhaps implemented.
I do not wish to add to the arguments made for particular municipal airports, which have already been developed at length. I simply indicate that P.A.C. were not necessarily justifying tonight's

procedure and certainly not arguing that Regulations should be laid before the House without considering the case for an element of subsidy for socially necessary purposes.

10.48 p.m.

Mr. John Wells: With respect to all hon. Members who have spoken, one might think that this was a Scottish and North of England debate.

Mr. Rankin: What is wrong with that?

Mr. Wells: Nothing is wrong with that.

Mr. Rankin: Why are you complaining?

Mr. Wells: Wait and hear. These charges will affect all airports in all parts of the island. Therefore, it is a national problem and not a regional and Scottish problem. If the hon. Member had bided his time in peace he would have heard what I was going to say.
There are fewer light aircraft flying in this island today than in the year 1938–39. This is the most deplorable truth. If these charges are to be increased under the Regulations the problems for the light aircraft operator, and, therefore, for the light aircraft industry, are likely to increase.
I realise that there must be an economic price, but that this country has a unique opportunity to foster its light aircraft industry, and a unique situation where we have certain light aircraft firms producing a good product to compete with any of their American or Continental counterparts. These Regulations place their enterprise and effort in grave jeopardy. The hon. Member for Glasgow, Govan (Mr. Rankin) seems to think there is nothing wrong with making this a parochial matter for Scotland and the North of England.

Mr. Rankin: rose—

Mr. Wells: Do not waste time.

Mr. Rankin: On a point of order, Mr. Speaker. Is it in order to make an allegation which is without foundation in any respect?

Mr. Speaker: The hon. Gentleman has been long enough in the House to be a little less sensitive.

Mr. Wells: I am grateful for your protection, Mr. Speaker. The point is


that within 40 miles of Greater London there are a number of minor and municipal airports. My hon. Friend the Member for Liverpool, Garston (Mr. Fortescue) mentioned a great municipal airport, but there are minor municipal airports which are of great importance to this industry, and I believe the Regulations we are now considering will do them irreparable damage, and I hope that the Board of Trade will think again.

10.51 p.m.

Mr. Kenneth Marks: Like the hon. Member for Liverpool, Garston (Mr. Fortescue) I am concerned about the very short notice given to airport directors to put forward their opinions and those of their committees. The week, or a little over, which was allotted was a very short time. I hope that Government Departments reply in as short a time to epistles which they receive from local government.
I think it was particularly difficult for local airports to receive this notice and for it to be applicable at a time when holiday traffic, which is so much a part of their business, was starting its peak. We have heard a suggestion that the Select Committee should consider socially necessary lines, and I should imagine that holidays now are regarded as socially necessary.
The fact is that as a result of these Regulations traffic for Heathrow and other national airports is likely to grow, and that of other airports is likely to decrease. Heathrow is over-used, but Manchester's airport at Ringway is under-used. There has been considerable capital development of late, with extended runways and extended services, all of which are satisfactory, I understand, but the airport itself is under-used. I suggest that there is a case for discrimination in favour of some of these airports.
I hope that the Minister, in his reply, will explain the short notice given to the local authorities concerned and all the other airports. I hope he will give some explanation of this incentive to increase traffic at Heathrow airport, and I end with one special point—

Mr. James A. Dunn: I should like just to put the record straight. On Wednesday, 7th May, the Minister of State received a

deputation from all the airports concerned that are affected by this Order. This does not detract one iota from some of the other inadequacies, but I think that should be on record.

Mr. Marks: That was my last point, that the hon. Member for Garston forgot in his calendar that on 7th May the Minister met representatives from all airports.

10.54 p.m.

Mr. Patrick Wolrige-Gordon: Whatever anyone may say about the particular points in these Regulations, one thing that many people in the country believe is that our airports are not right. There is something wrong with them. This debate today has directed a lot of attention to this point and there has been criticism of the Board of Trade in this respect. It has been quite interesting to me to hear criticism and concern expressed from all parts of the country and from almost every airport affected.
The hon. Member for Glasgow, Spring-burn (Mr. Buchanan) made the point in his speech that the Regulations discriminated against municipal airports, but it is also true that the Board of Trade, in its wisdom, has also discriminated against itself because a number of the airports discriminated against in the Regulations by the increases in the charges are run by the Board of Trade itself.

Mr. Buchanan: I pointed out that any deficit incurred by an airport under the control of the Board of Trade is paid for by the Government, while any deficit incurred by a municipal airport is paid for by the ratepayers, in addition to the other charges which must be met.

Mr. Wolrige-Gordon: I thank the hon. Gentleman for reiterating the importance of that point.
Hon. Members who are concerned, as I am, with airports run by the Board of Trade are anxious about an Instrument of this kind because of the additional difficulties that it will raise. I am particularly concerned with Aberdeen, since hon. Members who represent constituencies in the northern part of the country are keen to have good and efficient air services. We believe that it is more important to have efficient air services from the remoter areas than from


southern parts which are within easy reach of, say, London, by train.
The figures relating to the financing of an airport like Aberdeen are not easy to obtain, because they are grouped with the statistics applying to airports in, for example, Belfast, Bournemouth and Edinburgh. However, the air charges alone for Aberdeen last year were £120,000 while the revenue gained from the navigation service charge amounted to only £15,000—this in addition to the loss on the current account of the airport. It means that the burden falling on people wishing to develop air services from the north of Scotland—which are vitally necessary for the development of the local economy—will be made greater by this Instrument. It is time for the Board of Trade to reduce this burden and make it possible for the airports about which I have spoken to be developed.

10.58 p.m.

Mr. R. F. H. Dobson: I differ from most hon. Members who have spoken in that I approve of the Regulations and do not wish them to be withdrawn.
The Board of Trade has had to take a difficult decision. Such decisions often face Government Departments. In this case the Department has realised that two factors are involved. The first is that some of the deficit which exists as a result of these services must be recouped. It cannot be recouped—leaving aside the subsidy question—except in the way suggested. Broadly speaking, if those who use and need the services cannot pay for them, who can?
The second—and I am surprised that hon. Gentlemen opposite have not referred to this—is that the Instrument is discriminatory, although it discriminates for social reasons. For example, the Highlands and Islands services, which at present make a loss of £309,000, are excluded from its provisions. The hon. Member for Aberdeenshire, East (Mr. Wolrige-Gordon) might have mentioned that the airport in which he is passionately interested will not come within the terms of the Regulations.
I support the Instrument because we must recoup losses of this kind and because we must improve the navigation services in and out of airports. It is generally accepted that, in some respects,

they need improving. Adequate charges should be made to ensure that landing and take-off is safer for the travelling public. Until we get to the stage of recouping the charges, as the Regulations suggest, in order to improve local airport navigation services, we shall never make operators believe that this is something that should be done—

Mr. Buchanan: That is precisely the point we are making. We are asking the Board of Trade to be fair about it, and not just to put up some charges and keep others down.

Mr. Dobson: My hon. Friend is making a case only in favour of a particular airport which is close to that in which he is interested.

Mr. Buchanan: No, no.

Mr. Dobson: With respect, I cannot see that there will be diversions from Abbotsinch into Heathrow. There will possibly be diversions from Abbotsinch into Prestwick, with which my hon. Friend is concerned. My hon. Friend has a right to express his concern. I am seeking to discuss the whole of the development of our air navigation services in and out of our airports. These Regulations may go some way to improving them, because they make the charges more realistic.

Mr. Reginald Eyre: The arguments advanced by the hon. Gentleman may be sound, but would he not agree that the introduction of these charges was untimely, because airline operators from big cities like Birmingham had already fixed their charges for the present very busy season?

Mr. Dobson: I would accept that argument if the charges were being swingeingly increased, but let us take it in terms of total aircraft. A BAC111 on charter will go up from £13 to £19 for landing and take-off—total aircraft. That is not a great increase for the number of aircraft involved.
I see that I am over-running my time, Mr. Speaker, but I hope that I have succeeded in making some points in support of the Regulations.

11.2 p.m.

Mr. F. V. Corfield: It is not usual that I follow such a strong Tory speech as we have had


from the hon. Member for Bristol, North-East (Mr. Dobson), but I am delighted to do so now, although I do not entirely agree with him. We are indebted to the hon. Gentleman the Member for Glasgow, Govan (Mr. Rankin) for this debate. It seems to me that the House has, on the whole, shown some sympathy for the general principle that services provided should be paid for, and that where there is a deficit some efforts should be made to reduce it. I certainly do not quarrel with that view, but what I hope we shall be told is why the Board of Trade has chosen this particular method.
If one looks at the air traffic control services provided at airports, as opposed to en route, as, so to speak, an overall account, the obvious way in which to bring up the revenue to match the expenditure is by an across the board increase in charges. If, on the other hand, we are to go about it airport by airport, and say, "Heathrow pays its way", there can be no possible reason to say we shall similarly treat Stansted, Gatwick and Prestwick, which most certainly do not pay their way.
Again, as I pointed out earlier when I wanted to be sure that I should be in order to talk of subsidies, in so far as these charges do not cover the cost, there is a subsidy, and one would have thought that in adjusting subsidies, which is what the Regulations do, one would either see where the need was greatest—and it certainly is not greatest at Heathrow—or ask where was the air service need, as opposed to the financial need, where, for some particular reason, we wish in the national interest to encourage air services in parts of the country where they cannot otherwise be operated economically.
From time to time during Questions I have suggested that it is time to see to what extent our regional development policies are being inhibited by a lack of modern communications, and particularly by lack of air services, and I got the impression that my point of view was sympathetically received by the Minister. But the main airports that will suffer from a reduction of subsidy are precisely those which one would have thought required a little help to get the transport that is necessary to keep going the regional development expansion, about which the Government blow their own trumpet a little too enthusiastically but in whose success both sides are interested.

It is curious that, in adjusting subsidy, the Government should do it in completely the reverse order to the normal concept of the use of a subsidy.
When just after devaluation the Board of Trade, in consultation with the British Airports Authority, decided that landing fees should be increased at Heathrow, and we challenged that, we were told that this was not because the costs had risen but because we should charge what the market would bear so as to earn the maximum foreign exchange. There is no doubt an argument in that direction, but it is not to be applied here. If that argument is not to be applied, the charges are raised at Heathrow; they are not raised at Manchester and everywhere else except Heathrow and the few municipal and privately owned airports which provide their own service. They are the people who are not affected, plus the hangers-on to Heathrow because they happen to be owned by the same national authority, namely, B.A.A.
I hope that the Minister of State will be able to explain why the Government have adopted in these Regulations almost every principle that would be thrown out if any other form of subsidy or method of earning foreign exchange were being considered. I agree with my hon. Friend the Member for Liverpool, Garston (Mr. Fortescue) that the Board of Trade appears to have handled its consultations with airport directors in a remarkably cavalier manner.
Although I agree with the hon. Member for Bristol, North-East that the sums are not normally large, I believe that this is not the best time of year to announce increased costs, when people have committed themselves to fixed-charge holidays or fixed-charge charters or fares, as the case may be. I hope that we shall be given an explanation of what appears to be an extraordinary Statutory Instrument which, in the absence of explanation, can be described as slightly barmy.

11.8 p.m.

The Minister of State, Board of Trade (Mr. William Rodgers): The House will not dispute that the main consideration in civil aviation must be the safety of aircraft, their passengers, crews and the people on the ground. My hon. Friend the Member for Bristol, North-East (Mr. Dobson) mentioned this in passing.
The navigation services provided by the National Air Traffic Control Service are recognised to be as good as any in the world and must remain that way. But these services are costly, and as long ago as 1937 the Maybury Committee envisaged that eventually civil aviation should be economically self-supporting. This objective was repeated as regards ground services in the White Paper on Civil Aerodromes and Air Navigational Services, Cmnd. 1457, in 1961 and has not been changed by successive Governments.
It was not, however, until 1964 that Statutory Instrument No. 1071 introduced for the first time a separate charge for aerodrome navigation services, where these are provided by the National Air Traffic Control Service. I emphasise "aerodrome navigation services", because it is only this element of the air traffic control service that we are considering this evening. We are not considering the even more costly en route services which take over when the aircraft is clear of the aerodrome on departure or on arrival. These services are at present provided free and no charge is in contemplation before 1971, and then probably on an agreed international basis.
The charge introduced in 1964 was intended to be the first stage representing only a proportion of the cost of providing those services and, apart from the post-devaluation increase of 12½ per cent. for international movements already mentioned, there has been no further addition until the one now under review—that is, there has been a pause for nearly five years.
I refer now to the views of the Estimates Committee and the Public Accounts Committee, as did my hon. Friend the Member for Bebington (Mr. Brooks). I defer to his view, as he was a member of the Public Accounts Committee, but I must refer to what both had to say. The Estimates Committee in its Third Report. 1966–67, and the Public Accounts Committee in its Fifth Report, 1966–67, both emphasised the need for increased charges in order to reduce this indiscriminate indirect subsidy to the air transport industry. I stress the word "indiscriminate", and I shall return to that later.
In November, 1966, the Estimates Committee said:
Your Committee consider that it is wrong in principle that the taxpayer should be called upon to subsidise the users of the airlines of the world by being required to make up the considerable difference between the actual cost of navigation services and the amount recovered by way of the Air Navigation Service Charge. … the time has come to make some increase in the charges.
In July, 1967, the Public Accounts Committee said:
Your Committee endorse the policy of increasing charges progressively until the full cost of all air navigation services is borne entirely by the civil aviation industry, and they consider that the progress towards this end has been disappointing.
We have taken note of these views, and of what was, in effect, a reprimand from the Public Accounts Committee. We regard this as an additional reason for going ahead now to transfer more of the burden of these loss-making services from the taxpayer to the user. It is not a bad principle to look around for every possible opportunity of transferring burdens from the taxpayer if, prima facie, there seems to be a good reason for so doing.
The net reduction in Government expenditure of up to £500,000 in a full year will, I am sure, be worth while. Certainly, I should expect a saving of £½ million to commend itself to hon. Members opposite, even if my hon. Friends, with, happily, a different philosophy, might not accept it so readily. It is £500,000 that is at stake here: I do not take the view of the hon. Member for Liverpool, Garston (Mr. Fortescue) that it is a matter which should be approached with indifference as a fleabite in terms of public expenditure as a whole.
For the last financial year for which figures have been published, that is, 196768, the collective deficits for the provision of navigation services provided at the aerodromes concerned were £1,321,000 at the six municipal airports at Manchester, Birmingham, Liverpool, Glasgow, Glamorgan and Bournemouth, and just over £500,000 at the Board of Trade's aerodromes at Belfast, Edinburgh and Aberdeen.
The proposed 50 per cent. increase will reduce the deficit by some 25 per cent., so we still have a long way to go to achieve full recovery.
My hon. Friends may for a moment have been deceived into believing that this


subsidy is being extinguished. There is an argument in favour of extinguishing it, for the reasons which I have given. However, I remind them that in a full year, even after this increase, there will be, in effect, a subsidy of £1½ millions to the nine airports which we are discussing.
Now, a word about consultation. It has been suggested that it was inadequate, and the hon. Member for Garston had some harsh things to say. At least in some matters of detail, the hon. Gentleman had his facts wrong. He said, for example, that Liverpool submitted its views by 10th December. I have a letter dated 11 th December, a 15-line letter simply expressing—as one might have expected—displeasure at the intention as it was understood.
I strongly deny that democratic process has been scoffed at. I tell hon. Members plainly that between 25th November and the laying of the Regulations no joint representations were made by the airports concerned. With respect to them, I think they woke up a little late in the day and only then began to lobby their Members of Parliament. As my hon. Friend the Member for Liverpool, Kirk-dale (Mr. Dunn) rightly said, as soon as it was put to me that there was something to discuss I was very happy to meet a deputation. I thought that we had a useful discussion, even if I did not convince everyone.
A letter went to the appropriate representatives of airlines and airports on 25th November. It was a full letter, and it mentioned the very substantial deficit on air navigation charges and said unequivocally that we proposed that, with effect from 1st May, the rate should be increased by 50 per cent. The letter added that before the necessary Regulations were made the Board of Trade would be happy
… by way of consultation to consider any observation which your company"—
or committee—
may wish to put forward.
Comments were asked for by 10th December, though we considered all the comments whenever they came in. It was a clear indication that we wanted to hear views and intended to consider them. That was the nature of the consultation proposed. We considered all the letters which we received. They did not raise

any points which had not previously been in our minds. At no time did airports collectively say, "We want to discuss this with you and dispute the matter". If they had done so I or my officials, as appropriate, would have been prepared to see them.
Perhaps we have all learnt something from this experience. Perhaps next time representations will be firmer and earlier, and in a collective form. Perhaps next time I shall go out of my way not to wait to be lobbied but positively to invite my hon. Friends at an early date, even before they realise what we are up to.
We followed the proper process. We have always been prepared to listen to the arguments put forward: between 25th November and the laying of the Regulations there were five months, which is a very full period for consultations to take place, had there been a strong wish for them.

Mr. Fortescue: Will the Minister accept that on 19th March, when the airport directors had heard nothing from the Board of Trade in reply to their protests, they were told by telephone that these protests were still under consideration, and that the Statutory Instrument was laid on 1st April and that when he saw the airport directors on 9th May it had already been in force for over a week?

Mr. Rodgers: Yes. Those are facts. I have not disputed them. But I do not think that they affect the course of the events and the opportunities that there were for fuller discussion if there was any strong wish for them.
It has been argued, especially by the aerodrome managers and this evening by my hon. Friend the Member for Glasgow, Govan (Mr. Rankin), that the short period between the announcement of the decision to impose the increase and the effective date did not allow sufficient time for airlines to pass on the increases to their customers. If we had time I should like to enter into a long discussion on the economics of airline operation and the criteria by which fares are determined. Hon. Members cannot really believe that the majority of the airlines are so ill-equipped and unresponsive to possible changes in costs that when the warning was issued in November they were not in a position to take account


of it if they wished in the interim. Increases in domestic fares do not occur at frequent intervals, and the airlines consider all their costs and revenues before approaching the A.T.L.B. to ask for an adjustment. If we consider the figures involved, it is possible to see why the airlines cannot really have believed that this would involve any increase in fares. The extra charges falling on them could have been met simply by a growth of traffic and higher load factors. This alone in favourable circumstances could have been sufficient to offset the cost.
The assumption made in our discussion is that airlines would wish to increase fares for this reason alone, but the average increase is 3s. 6d. per return journey if only one of the nine airports is concerned—which is the usual case—or 7s. if two are concerned. It is not a cost change, when so much else is changing, which would of itself make an application for a fares increase worthwhile. British European Airways has said that it does not propose to seek an increase.
There is the separate question of charter inclusive tours. The tours operator usually publishes his brochure in December for the following summer season. He has, of course, a good idea of what the forward rates are likely to be in the aircraft charter market in respect of destinations, dates and times of departure and the likely cost of the relevant hotels. On this basis, he offers a price for various package tours in his brochure. It is probably not until late January or early February that he firms up his arrangements with his carrier. The carriers were, of course, as I have said, under warning since November—a period of over three months—that our charges might be increased and any prudent operator would have made allowances for this or provided a pass-on clause in his contract.
There have been objections that some of the organisers have been compelled to charge too much for some of their package holidays because of provision I. That has been said in this House. In this case, and to the extent that they bear these increased charges, the costs are brought more into line with what they are obliged to charge: to that extent

operators should be grateful to us for making their position a great deal easier.
Perhaps the strongest and, on the face of it, the most reasonable complaint tonight has been against the decision not to increase air navigation charges at airports controlled by the B.A.A. It has been argued by my hon. Friend the Member for Glasgow, Springburn (Mr. Buchanan) that this is discrimination against municipal airports If it is—and it is not—it would be discrimination only against certain of them, because many of them provide their own charges and are not affected by the Regulations.
As the House knows, there is a substantial surplus at Heathrow which results in a surplus on the Authority's accounts as a whole. But cross-subsidisation in aviation is becoming unfashionable and I do not see why we should introduce the principle now between B.A.A. airports and the others. But I take the point that the complaint is against our failure to increase charges at the other three B.A.A. airports—Gatwick, Stansted and Prestwick—because it is felt that they are no longer in line competitively.
I must confess that I think that some improbable suggestions have been made. I do not see aircraft which now land at Manchester landing at Heathrow instead. If they feel the charges to be too high at Manchester, they will surely go to Liverpool. The charges there are going up as well, however. In any case by going to Liverpool they would be helping an airport in difficulties while Manchester is prosperous and generally has very good prospects ahead of it. If that sort of diversion takes place, I do not think that there can be complaint.

Mr. Marks: There is considerable diversion of traffic between Ringway and Heathrow, perhaps because the weather is frequently bad at Heathrow when good at Manchester. There is thus an interchange between the two already going on.

Mr. Rodgers: Aircraft now diverted to Manchester because of bad weather will still go there. We must look at this in perspective. I lay a bet that there will not be the fall in traffic at these airports which the authorities fear may take place as a result of this increase.
I agree that Abbotsinch is in a special case and I was not surprised by the powerful advocacy on its behalf by my hon. Friend the Member for Govan. As he knows, because he does not like it, there is an agreement between Abbotsinch and the B.A.A., endorsed by the Board of Trade, which determines where the traffic will go. Whether he likes it or not, and on this occasion I think that he will like it, I can give him an undertaking that this agreement stands and there will be no possibility of diversions on this occasion.
May I refer particularly to the position at Manchester and Glasgow? Let us assume that there is no objection in principle to the idea of a subsidy. The two most prosperous municipal airports are Manchester and Glasgow. I wish to pay tribute to the admirable way in which they are run. I am not surprised also of Manchester, because my hon. Friend the Member for Birkenhead (Mr. Dell) was vice-chairman of the airports committee when the airport was getting on its feet.
In the year ended 31st March, 1968, Manchester earned a surplus of £370,000. This represents a contribution to the rates of 3¼d. At the same time, there was a net trading loss on air navigation services of £321,000. This means that out of the contribution to the rates of 3¼d., the taxpayer was paying 2¾d. Taxpayers were subsidising the ratepayers of Manchester through air navigation services.
Glasgow earned a small surplus in the year ended 31st March, 1968. There was neither a contribution to the rates, nor a rate burden. The net trading loss for air navigation services was £294,000. This was equivalent to a rate of 2¼d. We have contributed nearly £3 million towards initial development in Glasgow.
I compare this with the position at Liverpool which is in a development area when Manchester is not, which lost £567,000 in the year ended 31st March, 1968, representing 5¼d. on the rates. In this case the net trading loss for air navigation services was only £189,000, or the equivalent of a rate of 1¾d.
The case for subsidy is greatest at Liverpool where the loss is greatest and the subsidy smallest. The case for the subsidy is weakest in Manchester and the subsidy is largest. Thus it was a topsy-turvy situation which nobody wishes to

perpetuate. I could give other examples: Carlisle, Newcastle and Tees-side are all airports in development areas, but the position with them is that they do not receive a subsidy from the taxpayers. They provide their own services and, if the airport loses, the cost falls on the rates.
I see no reason in principle why the prosperous airports should have help and those which are least prosperous should thereby be disadvantaged. That is precisely the position which hon. Members who are praying against the Regulations would maintain. They wish to preserve the status quo.
However, I agree with my hon. Friend the Member for Bebington that the question of subsidy must be considered when we consider the Edwards Report. Important questions of principle are involved, but now is not the time to change things ad hoc.
I respect my hon. Friend's reasons for moving the Prayer. We have had a useful debate and I wish that we had longer to discuss the anxieties of hon. Members, but I ask the House to reject the Prayer. I do so because first, the increase in charges for navigation services is wholly consistent with the policy of successive Governments; secondly, the policy has been endorsed by Select Committees; thirdly, an increase represents a useful saving in public expenditure; fourthly, the present system of indiscriminate subsidy is haphazard and indefensible; fifthly, the increases are unlikely to have any substantial effect on airline charges; sixthly, the aviation industry is no longer an infant industry, but should stand increasingly on its own feet; seventhly, any broader decision about the future of regional air services and airports should await decisions by this House on the wider issues raised by the Edwards Report.

Question put and negatived.

Orders of the Day — STEEL INDUSTRY (SCRAP METAL SUPPLIES)

Motion made, and Question proposed, That this House do now adjourn.—[Mr. Alan Fitch.]

11.30 p.m.

Mr. George Darling: I want to draw attention to


the problems that are arising in the steel industry and in the national economy from the unsatisfactory supplying of scrap to steel works. It will be well known—[Interruption.]

Mr. Speaker: Order. It is not in order for more than one hon. Member at once to be standing.

Mr. Darling: It will be generally known that steel production in this country has recently been handicapped by a shortage of scrap. There is a steel shortage which was and is still having an adverse and costly effect on the whole economy and the balance of payments.
One result is that the output of steel is not meeting the demands of the steel-using industries, and that means practically every industry in the country. So we are importing steel which should be produced here and thus putting a burden on the balance of payments. This is a quite unnecessary addition to the cost of imports which are already much too high. Another result is that many steel works are not working to capacity. Some are on short time. This means that steel costs are increased and the earnings of steel workers are down and the economy suffers.
But the result to which I wish to draw particular attention is that to make good the scrap shortage, we are importing scrap, costly scrap, from the United States. The price is £20 per ton compared with the average home price of £12 per ton.
This is another heavy addition to our imports bill. Figures which the Minister of Power gave me in answer to a Question last week showed that United States scrap being imported in the first four months of the year cost £340,000. It will be a much heavier bill before the year is out, and it is a totally unnecessary bill.
We are having to pay these high prices and these huge sums because the forecasting and planning to balance potential demands for steel and supplies of scrap are incompetently arranged and conducted in an atmosphere of secrecy. There is no real shortage of scrap in the country. It is lying around all over the place—abandoned motor cars and lorries,

derelict coal mines, obsolete machinery, discarded cookers and washing machines, old steam locomotives and torn up railway lines. The country is full of it and more and more piles up every day, often to disfigure our towns and countryside.
But this scrap has to be collected, graded, processed and delivered to the steel works. Some furnaces take 100 per cent. scrap for the purpose of making special steels, but on average there is just over half a ton of scrap in every ton of steel produced; so scrap is important.
We have a fairly good system for collecting, processing and delivering scrap. There are thousands of collectors throughout the country and about 800 firms which process and deliver graded scrap. It is not their fault that the steel works have not enough scrap and are compelled to import a great deal at this excessive cost. I am sure that the scrap suppliers could provide all the graded scrap the steel works require if—and it is an important and obvious proviso—they were told in advance, even roughly, what quantities and what grades would be needed and where they would be needed for a reasonable period ahead. But they do not get any forecasts.
The only information they get, I understand from their federation, from the Steel Corporation and the independent producers are figures of scrap consumption and steel works' stocks two months back. They do not get forecasts of potential demands. So they cannot plan ahead. They cannot even plan their own investment programmes properly, and they use very expensive machinery for sorting, grading and processing scrap. It is a capital-intensive business and it is compelled to operate far too much on a hit and miss basis.
I am sure my hon. Friend will agree that every modem industry must do some careful and efficient forecasting of potential demands and undertake a lot of marketing and technical research. In the scrap industry an essential factor in any form of planning is an assessment of the steel producers' future demands, and this is what it does not get—or, rather, information is available, I understand, but it is given to only four firms, four of the largest scrap suppliers, the big boys in the industry, and it is withheld from the rest.
This is a very peculiar arrangement. The four firms—the four favoured firms—act as consultants to the Steel Corporation and to the independent producers, and between them they are supposed to do some forecasting and to advise the steel producers on supplies. I would say that the shortage of scrap shows that the advice which the so-called agency firms have been tendering is incompetent, or that the Corporation has taken no notice of it. But nobody outside this select circle knows who is to blame. The Scrap Federation, the association of scrap merchants and scrap processors, which tries to provide an information service to its member firms, is not told what goes on at these meetings between the Corporation and the four favoured firms. I think that this is an intolerable situation. I am quite sure that it is this utterly unsatisfactory arrangement which has produced the recent chaos in scrap supplies. As I have said, the nation is paying very dearly for this secrecy and what I believe to be incompetence.
But that is not the end of the story. In fact there is worse to come, for although the scrap merchants and the processors do not get the forecasting and information service which they need and ought to receive it seems that they are indirectly paying for it—paying for something which they do not get. Until recently, I believe the four agency firms were paid 9d. a ton on every ton of scrap supplied to the steel works by all the suppliers. On present tonnage this would work out at something over £300,000 a year. My hon. Friend the Member for Rotherham (Mr. O'Malley), who has a major steel works in his constituency which had to go on short time because of the scrap shortage, asked the Corporation about the payments to these agency firms and was told that the so-called consultants were not paid by a levy on tonnage but received a fixed sum which
is very considerably less than £300,000".
Needless to say, the actual sum they received was not disclosed. I think it should be disclosed and should be made public in the public interest, just as forecasts and full information about the demands for scrap should be made freely available to all the suppliers.
I am quite sure that the Corporation and the independent producers and the Scrap Federation could between them set up a very satisfactory and complete research and information service without any delay, and that that would cost far, far less than the £250,000 or whatever it is—indeed, only about one-tenth of what I believe the agency firms receive. As it is, no supplier, other than these four agency firms, has any idea of the plans which the Corporation has in mind to obtain enough scrap, for instance, to meet the target steel output of 34 million tons by 1975. This is an impossible situation.
I want to ask the Parliamentary Secretary about American scrap, which I believe is coming in at £20 a ton compared with £12 a ton for home scrap. In the Answer the Minister gave last week he said that none of it had been imported by the Corporation. Can the hon. Gentleman say whether this means that it is being imported by the agency firms? If this is the case, and I hope it is not, my hon. Friend will understand that the matter will have to be pursued further. It would be quite wrong for selected firms with inside information to use their privileged position and anticipate the demand for high-priced imported scrap for their own advantage. I should like to be assured that this is not the case.
The Minister has told us that he has put in hand a long-term study of supply and demand for scrap. This is to be welcomed. It should have been done years ago, but I realise that my right hon. Friend and my hon. Friend have not been in office over the whole period concerned. Can my hon. Friend say when he expects the study to be published and whether the results will be made public, or at least made available to all scrap suppliers, or whether it will be restricted to the four favoured firms?
We cannot wait for the outcome of this useful study. Some immediate action is necessary and I want to press the Minister to direct the Corporation to terminate this agency arrangement and do some real planning, openly and in full co-operation with all the interests concerned. What is needed is a sensible arrangement between steel producers and scrap suppliers for a better organising of supplies to meet the steel works' needs and for building up buffer stocks of processed scrap and ingots to meet—as often


happens in the industry—fairly sudden and perhaps unexpected increases in demand for steel, so that we do not get involved in excessive imports from time to time.
I know that it is very expensive to provide and hold stocks of scrap and finished ingots, but the agency fees are expensive, and seem to have given a poor return over the years. This money, £200,000 or £300,000, could be better spent in financing the interest payments on scrap stocks and providing a good information service to the whole of the scrap industry. It should be obvious to everyone that there is no shortage of scrap. What is wrong is the lack of forward planning. There cannot be such planning as long as the information on which the forecasting depends is withheld from the general body of scrap suppliers. Whatever may have been the reasons for supporting this exclusive consultancy arrangement in the 'thirties, it is completely inappropriate now. It is fantastically costly, and hampers the arrangements that the scrap suppliers would like to operate to make their industry increasingly efficient. I hope that the Parliamentary Secretary will announce that his right hon. Friend intends to issue this directive to the Corporation to terminate arrangements and start negotiations for an industry-wide research service.
There are one or two specific questions I want to put to my hon. Friend. Can he say how much of the income which the agency firms receive is spent on marketing or technical research? Is any research taking place? If so, where is it being conducted? By whom is it being conducted, and where are the results published? I am sure my hon. Friend will agree that because steel production in this country is so heavily dependent upon scrap, research into better recovery methods, better marketing methods, and so on, would be extremely useful.
Will my hon. Friend consider extending the study which his Ministry is putting in hand to cover the organisation of the scrap industry, its methods of collection, its recovery and grading processes, the possibility of economic stocking, and in fact all the other relevant factors? I think that a wider inquiry would be very useful, and could well

produce constructive proposals for the benefit of the whole industry.
I am not suggesting that there is a great deal wrong with this industry. Many minor matters may be wrong, but, generally speaking, I do not think that the industry requires a drastic reorganisation. The only thing that is really wrong is the consultancy business, which I hope will soon be brought to an end. If it is to be brought to end, this is a good opportunity to start the wider inquiry which I have suggested, so that this service, which is vital to the whole economy, can be made even more efficient and more useful than it is now.

11.46 p.m.

The Parliamentary Secretary to the Ministry of Power (Mr. Reginald Freeson): My right hon. Friend the Member for Sheffield, Hillsborough (Mr. Darling) was kind enough to give me an indication of some of the specific points that he wanted to raise this evening, and this has enabled me to check on certain points so that I can better answer the questions which he has put to me.
Like my right hon. Friend, we consider that the present shortage of scrap is an important, and indeed a very serious matter, though perhaps it is not so serious as my right hon. Friend has suggested. He gave the impression, whether intentionally or not I do not know, that there was considerable under-employment of plant in the steel industry as a result of the present situation. There were difficulties earlier this year, but I think it is overstating the position to give the impression, which my right hon. Friend perhaps did not intend to give, that there are severe strains on the production side.
My right hon. Friend went on to complain of the failure to foresee the need which is arising for a build up of scrap supplies to meet production needs, but I think I should say what is perhaps obvious in this industry, and indeed in other industries, that it is not always possible to foresee the speed with which a situation will develop, and the sudden surge in demand for steel has created an equally sudden demand for scrap, not only in this country, but in countries abroad.
Again like my right hon. Friend, we in the Department want to be able to take a broader and longer view of the needs of the iron and steel industry in relation to its scrap requirements, and it was for


this reason that the Minister instituted the study of long-term trends in supply and demand which he announced last week, and to which my right hon. Friend referred this evening.
My right hon. Friend asked—and this is a fair question—why there was not a build up of stocks to meet the situation which has developed this year. I think my right hon. Friend will appreciate that a chief reason is that stocking is an expensive business. Its costs could well outweigh the insurance value to be gained in the build up to meet temporary shortages which may arise. I am not putting this as an argument against the policy but to indicate that there is an important problem here.
There are also practical difficulties, such as the amount of space required for stockbuilding, and the deterioration which sets in from the exposure of scrap to weather if held for any length of time. Nevertheless, proposals for greater stocking should be taken seriously, and the British Steel Corporation is now studying the optimum level of stocks which it should seek to hold. The Department will keep closely in touch with this, and my right hon. Friend the Minister will be interested in the results in relation to the scrap imports-exports policy generally.
In our long-term study of trends in the supply and demand of scrap we shall certainly seek the views of consumers and suppliers of scrap; indeed, preliminary talks have already taken place with the British Scrap Federation, the B.S.C. and the British Independent Steel Producers' Association. It is too early to say when the study will be completed, but one of our objectives is to provide the scrap trade generally with better information on the likely pattern of demand over a longer period than is at present possible, and my Department will be in touch with the British Scrap Federation throughout this consideration. I cannot accept the form of proposal put by my right hon. Friend this evening but I hope that he will agree that we are seeking to meet the same objectives, if not in precisely the same fashion.
I appreciate my right hon. Friend's interest in the way in which the B.S.C. tenders advice on matters affecting scrap. I cannot enter into a discussion of what are essentially commercial matters in

relation to prices and costings on an annual or even an individual ordering basis, but the Corporation has the arrangement—inherited from pre-nationalisation days—under review. There are other persons to be consulted, and I hope to be able to leave the matter there for this evening.
It is true that the Corporation is having to import some scrap from the United States but the way in which it arranges this is again a commercial and managerial matter, and is not for me to pursue in detail at the Dispatch Box.
On present imports, I understand that the Corporation does not necessarily deal through its normal traditional arrangements. Neither the Government nor the steel industry wants high-cost foreign scrap metal any longer than is necessary, for obvious reasons, but at present there is no alternative, and in a sense this is a reflection on the booming situation developing in the industry.
On scrap recovery, I take this opportunity to pay tribute to the way in which the scrap trade has responded to the present exceptionally high demand from the iron and steel makers. The amount of scrap at present being supplied to the industry is the highest it has been for many years. But, valuable as this is, it is clearly not sufficient, even with the scrap produced in the industry, to meet demand. It has therefore become necessary to extend export controls to almost all forms of scrap. The control is now fully operational, and only material which is unacceptable at home can be exported.
My right hon. Friend referred to the high prices that we are having to pay for imports. We must remember that in considering the relationship between import and export prices of scrap only the lowest grade of material is being exported, because of the bar that has been imposed, whereas imports are of high quality, and naturally command high prices. Moreover, the figures of imports that my right hon. Friend the Minister gave in the House last week contained small quantities of particularly costly alloy scrap which is far more expensive than that which will be imported by the Corporation.
Finally, I should like to refer, as did my right hon. Friend in the latter part of his remarks, to research. Work is going


on in the Government laboratory at Warren Springs in connection with the separation of mixed metals in scrap, and thus the raising of the usefulness and value of scrap generally. I cannot say what, if any, expenditure the consultants who have been used in the past have devoted towards research and development in this field, but I can speak—as I have briefly tonight—of Government efforts in this field.
The methods being researched can be applied to "shredded" scrap derived from motor cars, domestic rubbish, and the kind of other objects scattered around the country which my right hon. Friend has referred to. I know that the scrap trade is alive to the need for more sophisticated methods of processing. The Government, not only in the work they are doing in their own research laboratories but also in their policy towards the industry, recognise what the industry is

wishing to do. The Government hope that the recent grant of S.E.T. premia and investment grants will enable them to make an even greater contribution to scrap requirements through the extended use of more modern methods. This was part of the argument and discussion which finally led to the decision to assist them in this way.
I would make one last general point, which I hope has been reflected in the remarks I have been making. The best possible use of scrap metals is considered to be an essential aspect of the better use of our natural resources. I hope I have reassured hon. Members that the Government and the steel industry will pay attention to this important matter, and to all the important aspects raised this evening by my right hon. Friend.

Question put and agreed to.

Adjourned accordingly at four minutes to Twelve o'clock.